At the time of kick-off newly approved projects, the issue of a bank guarantee might need to be addressed. This refers in general only to not public entities coordinating consortia which need to offer a monetary assurance over their financial capacity throughout project period. In case of small size programs (i.e., with overall budgets below 400K), funding authorities predictably ask for a guarantee which costs, usually, can be forecast in the budget.
What happens if this budget has not been provided in the design phase? Or what happens if the access to bank guarantees ends up being quite difficult due to banking systems policies? How can the coordinating partner address possible solutions to be discussed with the financing authority?
The impossibility to offer a financial guarantee from an institute might end up with the negation of the advance payment given by the authority (from 20% to 40% in most of the cases) or, in the worse scenario, with the revocation of the provisional funding of the project, thus the cancellation of the project implementation. Creative solutions must be discovered.
Having found ourselves in some situations like the above, one of the solutions put forth was to start the project activities without the advance payment of any instalment on behalf of the funding authority. In this case, project expenditures will be reimbursed after the delivery of results which are justified through regular financial reports. Upon approval of the report, every 6 months for example, the funding authority can release an instalment for the amount corresponding to the so far actual eligible incurred expenses. These so-called interim payments are sums of grant amounts applicable to each project partner calculated based on accepted eligible costs per partner and their respective grant rates. As said, one or more interim payments are transferred after the interim report is approved. The final payment constitutes the balance between the final calculated grant amount and the different payments already transferred. As known, the final payment is transferred after the final deliverables and financial report is approved.
The positive aspect of this solution is that the funding authority keeps control over the appropriate allocation of the approved budget without imperilling the prepayment risk of coordinators with small financial capacity and/or not yet fully experienced in the management of EU funds. On the side of the consortium, this solution enables partners to start and implementing the project activities avoiding the hassle and hardship of a bank guarantee acquisition, in some cases quite challenging and demanding in terms of time, and in respecting the strict timeline indicated in the proposal.
The critical element of this solution is that the consortium needs to work investing its own resources (human labour for sure, in some cases also liquidity expenses due to the purchase of travel items or equipment) ahead of any economic support. This might be tough, especially for small organisations that cannot rely on a side cash flow. For programs that cover 100% of the project costs, this activation without anticipated financing can be seen as a temporary co-financing on behalf of the partners, and as such, it can be afforded. In the case of an already provided co-financing rate by the program (frequently from 15% to 50%), the missing advance payment might end up as a serious problem for those entities which cannot rely on large, extra incomes from other activities.