Credit promise, own funds or a loan – how to describe project financing for a grant?

A credit promise, own funds or a loan can be used to demonstrate project financing, but the choice of financing source should follow from the rules of the specific call, the value of the investment, the level of own contribution, the method of paying out the funding and the applicant's ability to maintain financial liquidity.

In a grant application, it is not enough to state that the project will be financed by the grant. In most projects, you need to show what funds will cover the own contribution, ineligible costs, VAT and expenditure incurred before reimbursement.

Correctly presenting project financing is one of the more important elements of a grant application. The assessing institution must see that the project is not only consistent with the programme objective, but also financially feasible. Even a well-described project may receive a negative assessment if the budget, sources of financing and payment schedule are inconsistent.

In practice, three solutions are most common: own funds, a credit promise or a loan. Each of them may be correct, but each requires a different way of describing and documenting it. A project financed from the company's cash surpluses looks different from an investment based on a bank loan, and different again from a project in which the entrepreneur plans to use a preferential or commercial loan.

Why are the sources of project financing important in a grant application?

A grant application should show that the applicant is able to implement the project within the planned timeframe and scope. A grant very often does not cover the full value of the investment. Even if the level of support is high, the entrepreneur, farmer, medical facility, non-governmental organisation or local government unit usually has to provide financing for part of the costs.

Sources of financing are important for several reasons:

• they show whether the applicant has a real capacity to start the project,
• they confirm the ability to cover the own contribution,
• they make it possible to assess whether the project is excessively risky financially,
• they affect the credibility of the physical and financial schedule,
• they show whether the applicant will cope with the reimbursement-based payment model,
• they help assess financial liquidity during the investment period,
• they make it possible to check that expenditure is not double-financed from impermissible sources.

The most common mistake is that the applicant focuses solely on the grant amount and does not show how the entire project will be financed. Meanwhile, the assessing institution looks at the project as a whole: eligible costs, ineligible costs, VAT, own contribution, payment dates, advance payments, reimbursements and the ability to maintain liquidity.

What is own contribution in a grant project?

Own contribution is the part of the eligible project costs that is not covered by the grant. However, the applicant must also provide financing for ineligible costs. In many projects, VAT is also an important element of financing if it cannot be recovered or is not eligible in the given programme.

Practical example:

• value of eligible costs: PLN 500,000,
• funding level: 60%,
• grant amount: PLN 300,000,
• own contribution to eligible costs: PLN 200,000,
• additional ineligible costs: e.g. PLN 30,000,
• the applicant's real financing need: at least PLN 230,000, and sometimes more if the grant is paid as a reimbursement.

Own contribution should not be treated merely as the mathematical difference between the value of the project and the grant. From the point of view of the grant application, what matters is whether the applicant actually has, or will have, the funds to cover this part of the investment.

Credit promise – when is it worth including in a grant application?

A credit promise is a bank document confirming the bank's willingness to provide financing on specified terms. In practice, a credit promise can strengthen the credibility of the project, as it shows that the applicant has had the project or its financial situation subjected to a preliminary bank analysis.

A credit promise can be particularly useful when:

• the project has a high investment value,
• the applicant does not have the full amount of own funds in a bank account,
• the grant will be paid as a reimbursement,
• the project requires large expenditure to be incurred before reimbursement is received,
• the institution requires confirmation of external financing,
• the assessment covers financial capacity to implement the project,
• the project concerns a physical, technological, energy or production investment.

A credit promise is not always mandatory. In many calls, a declaration of secured financing, a bank statement or financial data from financial statements may be sufficient. However, if the project is capital-intensive and the applicant does not show high cash surpluses, a credit promise can significantly improve the financial consistency of the documentation.

It is worth distinguishing a credit promise from informal commercial information from a bank. For the purposes of the application, a document that indicates at least the amount of possible financing, the validity period, the basic conditions for drawing down the loan and the details of the entity to which the financing is to be granted carries more weight. In credit programmes of Bank Gospodarstwa Krajowego (BGK), which combine a loan with a grant, the templates of documents and the conditions of the credit promise may be set out in detail in the call documentation.

Own funds – when are they the best solution?

Own funds are the simplest and often the most favourably assessed way of demonstrating project financing, provided that the applicant actually has adequate capital. These may be funds in a bank account, financial surpluses from operations, the owner's capital, retained earnings or other legal and documented financial resources.

Financing from own funds works well when:

• the value of the project is moderate in relation to the scale of the applicant's business,
• the entrepreneur has stable financial liquidity,
• the project does not require large one-off expenditure,
• the payment schedule is spread over time,
• the applicant wishes to avoid the costs of external financing,
• there is no need to provide loan collateral.

However, own funds are credible only if they are supported by financial data. Simply stating in the application that the investment will be financed from own funds may be insufficient if the financial statements, bank account history or current operating results do not confirm this.

Consistency is particularly important in grant projects. If a company shows low profitability and a small cash balance while declaring high capital expenditure financed solely with cash, the assessing institution may consider such a model risky. In that case, it may be safer to combine own funds with a bank loan, a loan or another source of financing.

A loan as a source of project financing

A loan may be an alternative to a bank credit or a supplement to own funds. It may be commercial, preferential, provided by the owner or institutional. In practice, a loan is often used when the applicant does not want to or cannot use a traditional bank credit, but needs bridge financing or funds for the own contribution.

A loan can be used to finance:

• the own contribution,
• ineligible costs,
• VAT,
• expenditure incurred before reimbursement,
• the costs of preparing and launching the investment, if they comply with the programme rules,
• temporary liquidity needs during project implementation.

With a loan, it is important to document that it is real. If the loan is to come from a partner, the owner or a related entity, particular care should be taken to ensure formal compliance, repayment terms, interest, the date on which the funds will be made available and the absence of any risk that the source of financing will be challenged. If the loan is to come from a financial institution, the documentation should show the amount, conditions and availability of the financing.

Not every loan will be treated in the same way. In some programmes, care must be taken when combining different forms of State aid, de minimis aid, preferential financing and the prohibition of double financing of the same expenditure.

That is why, before adopting a loan as a source of financing, it is worth checking the call rules and the eligibility rules. General information on funds and calls can be monitored on the official website of the European Funds Portal.

Credit promise, own funds or a loan – how to choose the right solution?

The choice of financing source should not be random. The best solution depends on the value of the project, the applicant's financial situation, the grant payment model, the institution's requirements and the liquidity risk.

The simplest rule is as follows: the larger the project and the more reimbursement-based the payment model, the more important formal confirmation of financing becomes. For small projects, own funds may be sufficient. For larger investments, a credit promise or a loan agreement may be not only helpful but sometimes necessary from the point of view of financial credibility.

In practice, the following approach can be adopted:

• own funds are advantageous when the company has real financial surpluses and the project does not place an excessive burden on liquidity,
• a credit promise is advantageous when the project is large, requires bridge financing or the institution expects confirmation of financial capacity,
• a loan is advantageous when the applicant needs a flexible source of capital, but its terms should be well documented,
• a mixed model is advantageous when part of the project can be financed with cash and part requires external financing.

A mixed model is often the most realistic. For example, an entrepreneur may show that 30% of the own contribution will be covered from own funds and the remainder will be provided from an investment loan or another loan. Such an arrangement may be more credible than a declaration that the investment will be financed entirely from own funds, if the company's financial data do not justify such a declaration.

How to describe project financing in a grant application?

The description of project financing should be specific, quantified and consistent with the budget. It should not be limited to a general statement that the applicant will provide funds to carry out the investment. It is necessary to show from which sources the individual parts of the project will be covered.

A good description of financing should include:

• the total value of the project,
• the value of eligible costs,
• the value of ineligible costs,
• the amount of funding requested,
• the amount of own contribution,
• how VAT will be covered,
• sources of financing for expenditure before reimbursement is received,
• information on own funds, bank credit, a credit promise or a loan,
• the link between financing and the project implementation schedule,
• an indication of whether the project requires bridge financing.

A sample description might read as follows:

The applicant will finance the project from a combination of own funds and an investment loan. Own funds will be used to cover part of the own contribution and ineligible costs. The investment loan will be used to finance expenditure incurred before reimbursement is received. The financing model adopted limits the risk of losing financial liquidity during the project implementation period and is consistent with the physical and financial schedule of the investment.

Such a description is better than a general statement: “the project will be financed from own funds and the grant”. This is because it shows the financing mechanism, not just the sources at the level of a declaration.

What documents can confirm the sources of financing?

The documents required in a specific call always follow from the rules, the instructions for completing the application and the list of annexes. You should not automatically assume that the same set of documents will be sufficient in every programme.

The most commonly used documents are:

• a bank account statement,
• a bank certificate of balance,
• a credit promise,
• a conditional loan agreement,
• a loan agreement,
• a shareholders' resolution on recapitalising the company,
• a declaration of securing the own contribution,
• financial statements,
• the tax book of revenue and expenditure,
• documents confirming revenue and cash flows,
• a financial forecast for the project,
• a schedule of payments and reimbursements.

For programmes operated by PARP, it is worth checking the current explanations and call documentation each time. Official information and answers to questions are published, among others, on the websites of the Polish Agency for Enterprise Development (PARP).

The most common mistakes when presenting project financing

Errors in the sources of financing may lower the project's score or lead to a request for clarification. In extreme cases, they may undermine the feasibility of the entire undertaking.

The most common mistakes are:

• indicating the grant as the only source of project financing,
• no explanation of how the own contribution will be covered,
• omitting VAT,
• failure to account for ineligible costs,
• no bridge financing under a reimbursement-based payment model,
• inconsistency between the budget, the schedule and the description of financing,
• declaring own funds without confirmation in the financial data,
• presenting a credit promise with too short a validity period,
• a credit promise amount that does not match the value of the financing needed,
• failure to account for the costs of servicing the bank credit or loan in the liquidity analysis,
• entering sources of financing that are not permitted in the given programme.

A particularly common problem is failure to account for the delay between incurring expenditure and receiving reimbursement. If the entrepreneur must first pay the contractor, supplier or lessor and only later receives reimbursement of part of the costs, they must have funds for the interim period. The application should show this.

Project financing and reimbursement of costs

In many grants, funds are paid only after the expenditure has been incurred, a payment claim has been submitted and the documents have been approved. This means that even with a high level of funding, the applicant must temporarily finance a larger part of the investment.

Example:

• the company is implementing a project worth PLN 400,000,
• the funding level is 50%,
• the grant will amount to PLN 200,000,
• however, the company must first pay the invoices or secure financing until reimbursement,
• the real liquidity need may be higher than the own contribution alone.

In the application, it is worth distinguishing between two issues: own contribution and interim financing. Own contribution corresponds to the part of the costs not covered by the grant. Interim financing, on the other hand, concerns the ability to pay expenditure until reimbursement is received.

This element is particularly important for investments involving machinery, equipment, construction works, IT systems, renewable energy (RES) installations, thermal modernisation or technology implementations. In such projects, payment dates, advance payments to contractors and acceptance stages have a direct impact on financial liquidity.

Can own funds, bank credit and a loan be combined?

As a rule, in many projects different sources of financing can be combined, provided that the call rules do not exclude this and the financing does not lead to impermissible double financing of the same expenditure. However, the programme rules must be checked each time, including the conditions for State aid, de minimis aid and cost eligibility.

Combining sources of financing may be advantageous when:

• the project is of high value,
• the company wishes to limit the use of operating cash,
• some of the funds are needed only temporarily until reimbursement,
• the investment will be implemented in stages,
• the applicant wishes to maintain a safe level of liquidity.

A sample mixed model may look as follows:

• the grant finances part of the eligible costs,
• own funds cover part of the own contribution and the ineligible costs,
• a bank credit or loan finances expenditure until reimbursement is received,
• VAT is financed from current funds or from a separate credit line.

Such a model, however, requires a precise description. The application must show which part of the project will be financed from which source and whether the amounts are consistent with the budget.

How to match the source of financing to the type of applicant?

Project financing should be analysed differently for a micro-entrepreneur, a capital company, a farm, a medical facility, a non-governmental organisation or a local government unit.

Micro and small companies

They should pay particular attention to liquidity. Even a relatively small project can strain the bank account if reimbursement takes place after several months. In such a case, a credit promise or a bridging loan may increase the security of implementation.

Capital companies

They should ensure that financing is consistent with corporate documents. If the project is to be financed by additional payments from shareholders, a shareholder loan or a capital increase, this should be reflected in the relevant resolutions, agreements or accounting documents.

Farms

They should pay attention to the seasonality of revenue, investment commitments and the schedule of payments for equipment, installations or construction works. In renewable energy (RES) or energy efficiency projects, the date of delivery and installation is also important.

Medical facilities

They should take into account the stability of contracts, revenue from the NFZ (National Health Fund) or commercial activity, and the ability to maintain continuity of services during the investment period.

Non-governmental organisations

They should show particularly carefully whether they have funds for the own contribution and interim financing, as their revenue is often project-based, grant-based or earmarked.

How can the DOTACJE ONLINE team help analyse project financing?

Before submitting an application, it is worth checking not only whether the project fits the given call, but also whether the financing model is realistic and consistent with the programme requirements. In practice, financial errors often appear not in the amounts themselves, but in the logic of financing: no coverage for VAT, failure to account for reimbursement, a credit promise that is too weak or underestimated ineligible costs.

Through grant advisory services it is possible to analyse the project's eligibility, budget, own contribution, payment schedule and the way the sources of financing are demonstrated. Such an analysis is particularly important before submitting an application, as once the assessment has started, the possibilities for correcting the documentation are limited and depend on the procedure of the given call.

Would you like to check whether your project's financing model is consistent with the call requirements? We invite you to a consultation.Contact an expert

If you are still looking for a suitable programme, it is worth using the grant search engine with a free AI Assistant, which helps check the available grants for the planned investment.