The consequences of the coronavirus impact the German economy. Increasing threat of company closures and bankruptcies. Experts fear that many companies will not survive the crisis in the medium and long term. The German government intends to support affected companies with a three-step plan presented by the Federal Ministry for Economic Affairs and Energy (BMWi) at the beginning of March. We present the adjusted programmes and measures.
Currently, ensuring companies stay liquid is the first priority. To that end, companies are now able to access the mechanisms of step 1. These include already existing support options for companies such as guarantees and KfW loans. Different programmes to support liquidity have been expanded to give companies access to affordable credit.
Liquidity support from KfW and NRW.BANK
The German credit bank for reconstruction (Kreditanstalt für Wiederaufbau, KfW) commands vast resources to support the economy. However, entrepreneurs cannot directly apply for liquidity support at KfW but have to apply via their commercial bank. This could be their own house bank or a financial platform.
Adjusted Measures and KfW Banking Requirements
As part of the current rescue effort, KfW adjusted the following programmes as emergency measures on the order of the German government in order to offer them as assistance loans. Applications for such loans can likely be submitted starting Monday, 23. March. The first funds should be distributed in two to three weeks.
KfW Commercial Loans (for existing companies)
The assumed risk (indemnification) has been increased to up to 80 percent for working capital loans of up to EUR 200 million. Moreover, a larger number of companies is now eligible for this programme. Effective immediately, it also covers companies with annual revenue of up to two billion Euros instead of the previous EUR 500 million.
KfW Credit for Growth
Assumed risk for credits in this programme has been increased to 70%. Moving forward, these credits will not only be available for working capital but can also be used as an assistance loan by large companies with an annual revenue of up to five billion Euros. The revenue threshold had previously been set at two billion Euros.
ERP Start-up Loan – Universal
The ERP Start-up Loan – Universal applied to young companies that have been in the market for less than five years. Again, assumed risk was increased to 80%. This programme was also extended to cover companies with an annual revenue of up to five billion Euros.
Additional Special Programme being Developed to Facilitate Investments
To complement these emergency measures, the KfW is currently working on a special programme intended to ensure companies stay liquid. Working capital will be indemnified up to 80%, investments up to 90%. These measures are intended to give companies more financial freedom to make investments, pay employee salaries or settle current bills.
NRW.BANK also has prepared new offers. Companies with annual revenue of 500 million Euros or less who face financial difficulties can apply for the NRW.BANK’s universal credit effective immediately. NRW.BANK also increased assumed risk to 80%. Loans of up to 250,000 Euros are supposed to be approved within 72 hours. Working capital loans are supposed to be interest-only for up to a year. Meaning only interest is paid during the first year with no repayments of the principal.
The North Rhine-Westphalia guarantee bank (Bürgschaftsbank NRW) provides express-guarantees
Additional, express-guarantees are being offered by the Bürgschaftsbank NRW. The bank is able to approve these within 72 hours. This enables small businesses, start-ups and training companies to receive quick liquidity support even if they have not been in business for five years yet. The ceiling for guarantees being offered by guarantor banks was doubled to 2.5 million Euros across Germany. Guarantor banks are to be able to make independent approval decisions inside 72 hours for amounts up to 250,000 Euros.
All of the programmes described above allow for indemnification only up to 80%. Liquidity support requested in this manner therefore requires house banks to also issue credit since they have to decide on the remaining 20%. This will cost time and will not help all business owners as the banks‘ assessments can vary widely.
Today (19.03.2020) the federal government announced additional liquidity support for small and medium size businesses to the tune of 40 billion Euros. We are expecting information on applicable conditions very shortly. It is possible for liquidity support to not take the form of a loan but a subsidy, at least in part.
We therefore recommend waiting for the relevant information to be available. In any case, you should have your annual accounts for 2018 and 2019 and/or a current business assessment up to the month of February 2020 prepared, as the granting of support will in all likelihood be based on those at a minimum. Please feel free to get in touch!