When applying for a grant, you are required to provide forms containing information about your organisation. This allows the funding authority to verify that you meet the applicable requirements. One of these forms is the ‘Declaration of No Financial Difficulties’, in which you declare that your organisation is not experiencing serious financial difficulties. In principle, this makes sense. Public funding should not be used as a lifeline for a company that is close to going under.
The problem is that, due to a recent tightening of the policy, organisations that previously were eligible for funding may now be excluded. What exactly has changed? Which companies are affected? And what does this mean for the innovative climate in the Netherlands? We explain.
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What is a ‘Declaration of No Financial Difficulties’?
Let’s start at the beginning. With the Declaration of No Financial Difficulties, you demonstrate that your company is not considered an undertaking in difficulty. In practice, this means that, to qualify for certain grants, there must be a healthy balance between a company’s equity and debt. Startups are exempt from this requirement during the first three years after incorporation. If the balance is disproportionate after those three years, the company may be classified as an undertaking in difficulty, meaning it is out of the game.
In the Declaration of No Financial Difficulties, the funding authority asks several questions to determine the financial status of your company. If you answer ‘yes’ to any of these questions, you do not meet the requirements and are therefore considered an undertaking in difficulty. To illustrate the requirements, we briefly go through the questions one by one.
For all legal forms
Is the company subject to collective insolvency proceedings, meaning that it has been granted a suspension of payments or has been declared bankrupt? Or would the company meet the criteria for being placed in collective insolvency proceedings at the request of its creditors?
If so, the company is considered to be in financial difficulty and is not eligible for the relevant grant.
For private and public limited companies
Has more than half of the subscribed share capital disappeared as a result of accumulated losses? In other words: when accumulated losses are deducted from the reserves, does this result in a negative amount exceeding half of the subscribed share capital?
If so, the company is considered an undertaking in difficulty and is not eligible for the relevant grant. Please note: this does not apply if you are an SME that has existed for less than three years.
For a general partnership
Has more than half of the company’s capital disappeared as a result of accumulated losses?
If so, the company is considered an undertaking in difficulty and is not eligible for the relevant grant. Please note: this does not apply if you are an SME that has existed for less than three years.
For large enterprises
During the past two years, was the ratio of debt to equity higher than 7.5? Or was the company’s EBITDA-based interest coverage ratio below 1.0?
If so, the company is considered an undertaking in difficulty and is not eligible for the relevant grant.
What exactly has changed?
In 2017, the Dutch Ministry of Economic Affairs and Climate Policy published a circular explaining when a subordinated loan could be treated as equity. This circular was withdrawn on 13 September 2024. In practical terms, this means that subordinated loans can no longer be included as equity. The policy was therefore tightened rather abruptly.
This can cause problems for a large group of SMEs, particularly scale-ups. These companies are generally more than three years old and are often financed through convertible loans, which are a type of subordinated loan. As a result, a considerable number of organisations may now be classified as undertakings in difficulty, even though their cash position is perfectly healthy. Many of these companies have positive cash flow, are growing and are operating from a position of strength, partly thanks to these loans.
Fast-growing and innovative companies often make extensive use of a combination of grants, tax incentives and financing instruments. If these companies are classified as undertakings in difficulty, access to many grants is effectively cut off. Yet these grants are specifically intended to strengthen the innovative capacity of a region, the Netherlands or Europe and to reinforce the economic structure.
What does this mean for your grant application?
What this change means for you as an innovative entrepreneur depends on your specific situation. Has your application already received a funding decision? In that case, there is currently no issue.
If your application has already been submitted but has not yet been assessed, you are in a grey area. In such cases, the consequences of the tightened policy are assessed on a project-by-project basis. This may also affect consortia. For example, if one or more partners are classified as undertakings in difficulty under the tightened rules, this may mean that the partner has to withdraw or that the entire project, in its current form, can no longer proceed.
If you are still in the application process, or have not yet started it, the tightened rules apply.
We are happy to help!
Would you like to know what this policy change means specifically for your organisation? We are happy to help you understand what the consequences may be for your grant application.
Erik Jan
