Definition and objective of public funding Public funding is financial support provided by government institutions at federal, state or European Union level. The aim of these subsidies is to implement specific economic, social or environmental policy objectives, for example to promote innovation, regional economic development or support young companies. In particular, funding enables small and medium-sized enterprises and start-ups to make investments, research activities or expansions that would be difficult or impossible to realize without this financial support. Funding is allocated in a targeted manner in order to promote strategic economic policy objectives such as job creation, technological innovation or environmental sustainability. Typical funding instruments include grants, low-interest loans, public guarantees and specific funding programs.

Legal forms and funding instruments Public funding is awarded in various legal forms and instruments. These include, in particular, non-repayable grants, which are made available directly to companies, as well as low-interest loans, for example from the Kreditanstalt für Wiederaufbau (KfW). Other instruments include state guarantees, which help companies to secure loans from banks. Specific programs such as the EXIST start-up grant or regional innovation funding are also designed to provide targeted support for start-up activities and innovation projects. The legal basis varies depending on the funding instrument and is set out in special funding guidelines and legal requirements.

The legal basis for the allocation of funding is usually formed by administrative acts, in particular administrative acts in accordance with the Administrative Procedure Act (VwVfG) or public law contracts. Funding is awarded in accordance with defined criteria and funding guidelines, compliance with which must be demonstrated by the company through detailed funding applications. Once the application has been successfully submitted, the company receives a grant notification that contains precise details on the amount of funding, the specific use of funds and the reporting and verification requirements that must be met. These requirements are intended to ensure that the funding is used in accordance with the funding purpose and that any misuse is avoided.

Earmarking of funding and legal consequences of non-compliance Funding is generally strictly earmarked, i.e. companies may only use the funds for the purposes defined in the funding application. Compliance with this earmarking is monitored through regular verification, reports and audits. Violations of these requirements, in particular the misappropriation or incomplete documentation of the use of funds, can have serious legal consequences. In accordance with Section 49a of the Administrative Procedure Act (VwVfG), there is an obligation to repay the funding granted in such cases. There may also be further sanctions, such as exclusion from future funding or criminal prosecution in cases of fraud.

State aid regulations and European framework conditions The acceptance of public subsidies can fall under European state aid law in accordance with Art. 107 TFEU, as subsidies are considered state aid that could potentially distort competition. However, many funding programs are exempted from the obligation to notify the European Commission by so-called exemption regulations, in particular the de minimis regulation. This means that companies may receive a maximum of EUR 200,000 in subsidies within three fiscal years without having to notify the European Commission under state aid law. Companies must therefore carefully check whether subsidies are relevant under state aid law in order to avoid possible repayment claims or other sanctions.

Advantages of using public funding The use of public funding offers companies numerous advantages, including improving liquidity, enabling investment and innovation and providing security for high-risk projects. In particular, subsidies help small and medium-sized companies and innovative start-ups to effectively exploit their competitiveness and growth potential. In addition, subsidies often help to facilitate access to additional private financing or loans, as they represent a form of security and financial stability. The strategic use of public funding thus enables sustainable and future-oriented corporate development.

Risks and challenges with public funding Despite their advantages, public funding also poses certain challenges and risks. Companies must take into account the effort and complexity of the application process and ongoing documentation, which can represent a considerable administrative burden. There is also the risk that breaches of funding guidelines or earmarking can lead to the funds being reclaimed. Furthermore, compliance with European state aid regulations requires a precise and continuous legal review in order to avoid legal violations and potential sanctions. Therefore, careful and expert advice when applying for and using public funding is crucial for the successful use of this form of financing.