What are bad debt loans?

5 days
30 days
Loan term
30 days
Loan information
Non-repayable loans

In the world of loans and credits, there are many options, each of which has its own characteristics. Therefore, when people look for ways to obtain financing, it is inevitable to know all these alternatives, since this is the only way to guarantee that the choice of the option is appropriate, according to the needs.

A very special type of loan is non-repayable loans. This type of financing can be very useful to promote your business idea, but for this, a person (a company) must meet very specific requirements. So what is a non-forgone loan?

What are bad debt loans?

These types of loans are actually government grants where payment is not required when the final allocation of funds is justified. Therefore, they are state aid, whose objective is to balance social inequality.

Logically, non-refundable loans are not easy to obtain and are generally granted in very specific cases, for example, when a natural disaster occurs in the area. Therefore, it is designed to repair all the damage and revive the local economy.

In the case of the business sector, they are also provided periodically to increase productivity and business expansion. Therefore, certain government agencies, both local and regional, national or European, have certain loan bases that govern the characteristics that the beneficiary must meet.

Among all the types of loans granted by administrations, including contributions not only in cash but also in goods or services, there are mainly 2 types:

  1. Equity loans (financial investments);

  2. Operating loans (they finance the operating expenses of the company, and the most common are:

  • Non-refundable grants. The administration provides them as assistance without obligation to return them.
  • Bonus on the interest rates of a loan granted by financial institutions: in this case, it is the Administration that subsidizes part of the interest that the company must pay.
  • Low interest direct loan. Government organizations also provide this type of project implementation assistance, especially for young entrepreneurs.
  • Temporary participation in the capital of the company and elimination of benefits: these are loans with participation when the administration is part of the shareholder for several years and later abandons its participation, and the invested capital is returned. It is commonly used in technological innovation projects.
  • Bonuses in social security.
  • Bonuses or benefits for taxes and fees.
  • Training, hiring of personnel, commercial exchange services and specialized consultations.

Therefore, there are many financing opportunities through state administrations, but undoubtedly the most attractive are non-refundable loans.

How does it work?

As a freelancer or entrepreneur, it is unlikely that you will be able to apply for one of these loans unless the government encourages this type of financing in your area. In this case, there are usually many requirements that you must meet. In most cases, they are based on the applicant's income and the unemployment rate in the area.

In addition, a frequent requirement for a non-nonperforming loan is the hiring of employees and the like. Remember this is a production loan that is tied to performance in this regard. It should also be noted that the government agencies responsible for regulating access to these loans are often local.

How to request non-repayable assistance

These grants are generally distributed as follows:

  1. The government is launching a project to help a specific region or community with the idea of ​​improving the local economy.
  2. The list of funds that may have access to this financing is indicated.

The requirements for applicants are published in the publication which also indicates the dates that entrepreneurs can apply for assistance, as well as the process they must follow.

If you are an entrepreneur and meet the planned conditions, you can submit an application in a timely manner. After that, it only remains to wait.

Key benefits of lost fund

Non-refundable grants have indisputable advantages, among them the following can be distinguished:

  • they aim to combat inequality and improve the economic situation of a particular region;
  • they can help a particular community to overcome the effects of a natural disaster;
  • they can help you find the capital you need to start a new business.

There are three types of non-refundable grants:

  1. Non-Competitive Match - These grants are awarded in the order of presentation and end when available funds are exhausted.
  2. Competitive Concurrency: In this case, all applications are evaluated. Only projects that receive the best evaluation will receive a grant and therefore funding.
  3. Direct sponsorship: These cases are generally contemplated in the general state budgets and are generally directed by public, social, economic or humanitarian interests.

Who benefits from using bad debt loans?

Non-refundable loans are intended for entrepreneurs and companies in Spain that require special protection from the state administration. As a rule, this happens in those very poor areas of our country where there is an idea to stimulate the local economy. It consists of facilitating the creation of a business, as well as its maintenance, without being a mandatory total or partial repayment of the loan received. The non-non-repayable grant contribution is not only necessarily monetary assistance, but can also be in the form of goods or services, which are one of the characteristics of the payment.

In other words, it is very similar to subsidies, with the difference that this type of assistance is provided mainly with the idea of ​​improving the economy of a certain area.

A good example of such loan disbursements to businesses and companies is Lorca after the earthquake several years ago. In order to resume job creation and productive business in the region, many companies received these non-refundable grants to facilitate their return to business. And the fact is that non-refundable loans for business owners are generally destined for territories with greater inequality. That is, its objective is to promote the economy and create companies in the areas that need it. (For example, areas with high unemployment). Among some autonomous communities that generally receive non-refundable loans, Extremadura or Andalusia can be named.

Therefore, this loan is not easy to obtain, because it is the government who decides who and where will receive it.

about the author

Maria Solis Burley

Credit consultant in Spain. Financial Analyst at Crédito Victoria.
LAST UPDATED: February 6, 2020