Understanding and simplifying the management of conditional financing programs

Today, distributing financing programs or grants subject to eligibility criteria to companies is often perceived as a complex process. In theory, the principle is simple: a bank checks whether its customer meets the criteria for a conditional financing or subsidy program, then decides whether or not to grant credit. An emblematic example in France is the Prêt Garanti par l'État (PGE), an   exceptional measure set up by the French government during the Covid crisis to support bank financing for businesses, with an envelope of 300 billion euros.

In practice, however, the system is far more complex, to the point where some banks refuse to offer these programs, or distribute only a meagre portion of the allocated envelope. However, an optimized, structured process from start to finish can make all the difference. Here's a clear, simplified description of how it works, with a scheme to help you visualize each stage.

In this article :

1. The players and programs involved
   1. Types of programs
   2. The three key players
2. The distribution process, step by step
   1. Setting up the program
   2. Distribution to customers
   3. Interactions between managers and distributors
3. Loan event management
4. From headache to modern management
5. An integrated, dynamic platform
6. Reduced constraints and risks
7. Concrete benefits for all stakeholders
8. Conclusion

The players and programs involved

Before getting to the heart of the matter, it is essential to understand the types of programs and the main players involved:

Types of programs :

The programs offered fall into several categories, including :

• Guaranteed financing programs: an institution guarantees part of the risk associated with a loan granted by the partner bank. This reduces the risk borne by the bank, which can then either lower the rate of the loan offered, or more readily agree to finance projects or a sector of activity under stress.
• Subsidized-rate financing programs: borrowers benefit from a reduced interest rate, thanks to a cheaper financial resource provided to the bank by the institution, which then indirectly passes on its rate to the partner bank.
• Subsidies: direct financial aid to support specific projects and supplement sources of financing (e.g. ADEME Tremplin aid for the ecological transition of SMEs in France). These lump-sum grants facilitate the launch of studies or the financing of initial sustainable initiatives in the fields of energy, climate or the circular economy).

These programs often have specific objectives: to support strategic business sectors, encourage innovation or accelerate the ecological transition.

The three key players :

1. Public institutions
   These are the ones who design and propose programs (for example, public authorities, BPI, the EIB, the EIF or other organizations). They define budget envelopes, objectives (such as supporting young farmers or promoting energy transition) and eligibility criteria. The institutions work with the banks to set up these programs. This is a genuine tool of national or European economic policy. These institutions are known as credit enhancers.
   
   
2. Bank middle and back offices (Administrator/Program Manager)
   These teams work within the banks to manage program distribution. Their role is crucial and multifaceted:
   • Negotiate the framework of financing programs with the institution
   • Supervise the management of the contractual envelope
   • Ensure compliance with eligibility criteria
   • Centralize information and audit trails justifying project eligibility
   • Provide regular reporting to the institution
   • Act as a link between institutions and account managers in the field
     
     
3. Bank front offices (Distributors)
   These are the bank advisors who identify eligible customers and offer them appropriate solutions for financing their projects. They play an operational role, relying on information provided by middle office teams to distribute programs efficiently and correctly.

The distribution process, step by step

1. Setting up the program

An institution contacts the banks to propose a support program for a specific economic sector or type of project. For example, a program could aim to facilitate the installation of young farmers, encourage decarbonization, or combat medical deserts by promoting the installation of doctors in certain regions. The institution provides a budget envelope and a set of specifications specifying the eligibility criteria to be met.

The banks, often those with a strong local presence, discuss and negotiate the terms and conditions with the institution (targets, objects to be financed, financial conditions, etc.), then sign an agreement with the institution before being allocated the dedicated envelope.

2. Distribution to customers

Once the program has been defined, the bank advisors (distributors) can start offering it to their customers. They consult the specifications and identify potentially eligible customers.

At the same time, a dedicated in-house team (administrators) manage the program within the bank. Their role includes managing applications, providing support to advisors, and reporting to the credit enhancement institution.

3. Interaction between adminisrartors and distributors

Distributors call on loan officers to validate customers' eligibility for the project to be financed. They complete a questionnaire and gather the necessary supporting documents. Managers then centralize and analyze the requests, create a file for each loan, and send the information to the credit enhancement institution.

If everything is in order, the loan is approved. If not, the institution may refuse to upgrade the loan, exposing the bank to financial risks, as the loan has often already been contracted (without waiting for the institution's validation).

Managing loan-related events

Once the loan has been granted, the follow-up doesn't stop there. You need to manage any events that may arise, such as :

• Early repayment: the bank needs to inform the institution to end the guarantee, or return the money lent.
• Customer default: in the case of an enhancement by a guarantee (surety issued by the institution), the bank must activate the guarantee to cover its losses, in accordance with a contractual process and deadlines.
• Recovery: if the bank recovers funds, it must return them first to the guarantor institution.

From headache to modernized management

Traditionally, the management of conditional financing and subsidy programs was a real headache. Manual processes were accompanied by numerous constraints:

• Tools that discouraged distributors: forced to manipulate heavy, static Excel files to check customer eligibility, line by line, distributors often tended not to offer this type of financing, thus depriving companies of this source of loans.
• Inefficient exchanges: credit applications had to be validated by going back and forth by e-mail with managers, resulting in loss of information, long delays and wasted time on these time-consuming administrative tasks.
• Time-consuming reporting: managers spent a considerable amount of time manually consolidating data for transmission to institutions, which require - at the very least - quarterly reporting.
• High operational risks: the heavy reliance on key individuals and the asynchronous nature of the process increased the risk of errors and non-compliance.
• Risks of financial loss: the risk of incorrect identification of eligible projects, due to a manual study, was a very significant risk of requalification of the guarantee or subsidized rate obtained for the bank.

Faced with these challenges, Kls offers a structured solution to transform the way these programs are managed.

An integrated, dynamic platform

Through its Debt Eligibility application, Kls provides an online space optimized to meet the needs of the various players involved:

1. For administrators :
   • Customized settings: program eligibility criteria can be transcribed and configured directly in the interface.
   • Centralized management: distributor requests and program consumption can be accessed in real time, reducing duplication and the risk of errors, and providing an overall view of the program's success or failure.
   • Sharing and traceability: thanks to validation stages (from eligibility analysis to contractualization and early repayment) traced in the platform, and a collaborative data room recording supporting documents, administrators can ensure a reliable audit trail over the entire granting and life of the financing.
   • Simplified reporting: consolidated information can be used to produce ready-to-use regulatory reports, in line with the requirements of partner institutions.
     
     
2. For distributors:
   • An integrated eligibility engine: advisors have access to an interactive form that automatically assesses whether a customer is eligible for a program, considerably simplifying their action and enabling them to meet their customers' needs.
   • Greater control: a dedicated dashboard enables them to track the progress of applications, from validation of criteria to loan contracting.
   • Smoother exchanges: thanks to alerts and an integrated communication system, they can easily report credit-related events, such as payment defaults or guarantee requests.

Reduced constraints and risks

With Kls Desk's Debt Eligibility application, laborious manual processes give way to fluid, automated management. The benefits are manifold:

• Better coordination: interactions between managers and distributors are centralized, limiting the loss of information.
• Greater efficiency in the financing offer: distributors spend less time on administrative procedures, and can concentrate on their role of advising customers.
• Greater efficiency in administrative management and reporting : managers can manage and report on a large number of programs without additional workload or resource requirements.
• Enhanced compliance: thanks to full traceability and tailored reporting tools, managers can ensure that every guaranteed loan application complies with partner institutions' criteria.

Concrete benefits for all parties involved

By optimizing each stage of the process, Kls enables :

• Administrators to efficiently manage envelope distribution, while limiting operational risks.
• Distributors to increase their program take-up rate by offering their customers a fast, simplified and optimized service.
• Institutions to have access to reliable and accurate reports to monitor their commitment and ensure the success of their public policies on the economy.

Rather than a revolution, Kls acts as a facilitator, transforming a once complex process into a coherent, rapid and secure system. By reducing friction and making each step more intuitive, this solution improves not only program management, but also end-customer satisfaction.

How does it look in pictures?

Discover the distribution process of these programs, from request to follow-up, with the Kls Desk platform:

Want to find out more about Kls Desk? Contact our sales team to arrange a demo of the platform.