The honor loan is a particular form of financing created with the aim of helping young entrepreneurs, and not only. But how does an honor loan work today?
Before explaining how an honor loan works, a premise is a must. Although this form of financing was born with the aim of helping new businesses, these non-repayable loans have often been the subject of scams, and because of this scourge, non-repayable loans are almost completely extinguished. So how does an honor loan work today? Very differently. Apart from the fact that non-repayable loans are very rare, and almost always the result of European funds, operation has also changed. The lost fund is almost always around 40% of the amount requested, while the remaining part is lent to zero interest and with many constraints.
What is an honor loan?
To explain how an honor loan works, the first thing to do is to understand what it is. Introduced with Legislative Decree 21/4/2000 n. 185, non-repayable loans provide a series of contributions, aimed at the entire national territory, to facilitate the creation of small companies, both corporate and individually.
The facility is aimed at people who want to start a small business in the sectors of production of goods or services. To qualify for the subsidy, the half of the members who hold at least half of the shares in the company must have reached the age of majority on the date of the application. Furthermore, the non-employment status is required for the loan of honor at the time the application is lodged and the residence in the national territory for at least six months at the date of submission of the application.
How does an honor loan work? Eligible investments
One of the fundamental chapters to understand how an honor loan works concerns eligible investments. In general, the costs for equipment, plant, machinery and connections are recognized; but also intangible assets with multi-year utility and property renovation (10% of eligible investments).
The Legislative Decree 185/2000, relative to the loan of honor, admits to the contribution also a series of management expenses related to the first year of activities such as consumables, semi-finished and finished products, as well as other costs within the production process. Obviously they include utilities, rents for real estate, financial charges, insurance guarantees for assets financed.
When it comes to how an honor loan works, it must be remembered that for investment costs, Legislative Decree no. 185/2000 generally provides a mix of non-repayable contributions of about 50% and subsidized financing for the remaining 50% which covers all investment expenses.