Member Article

Corona-related sales declines in many industries lead to short-term liquidity bottlenecks for numerous companies. As the third pillar of the protective shield for employees and companies, the German Federal Government has therefore decided on new and unlimited measures to expand liquidity assistance to facilitate companies’ access to cheap loans. It is thereby intended to stimulate the willingness of borrowers’ principal banks to grant loans by increasing risk assumption to up to 80 percent, in special cases even up to 90 percent, by KfW (Kreditanstalt für Wiederaufbau) and the state development banks as well as the guarantee banks (Bürgschaftsbanken). These measures include:

• The terms and conditions for the KfW-Unternehmerkredit (business loan for existing enterprises) and the ERP-Gründerkredit-Universell (start-up loan for companies that are less than 5 years old) will be considerably expanded by raising the level of risk assumption (indemnity against liability) uniformly for all companies that have been on the market for more than two years to up to 80 percentfor working capital loans of up to EUR 200 million.
  
  
• These credit facilities will now also be opened up for large companies with sales of up to EUR 2 billion (previously: EUR 500 million).
  
  
• The “KfW Loan for Growth” programme for larger companies and larger projects will be temporarily expanded to include general corporate finance including working capital by way of syndicated financing (previously limited to investments in innovation and digitalization). Additionally, the previous sales limit for eligible companies will be raised to EUR 5 billion and risk assumption will be increased to up to 70 percent.
  
  
• In the case of guarantee banks, the maximum guarantee amount for SMEs and the independent professions across all sectors will be doubled to EUR 2.5 million. To accelerate the provision of liquidity, the guarantee banks are allowed to take decisions on providing guarantees up to EUR 250,000.00 independently and within three days. Submitting a plausible liquidity plan is important for the quick and successful assessment of requests for support for bridging finance. The German Federal Government will increase its risk share with the guarantee banks by 10 Percentand the upper limit of 35 percentof working capital resources in total exposure of the guarantee banks will be raised to 50 percent.
  
  
• The large guarantee programme (parallel guarantees from the Federation and the Länder), which had previously been limited to companies in structurally weak regions, will be opened to companies outside these regions. The Federation makes it possible to cover working capital financing and investments with a guarantee requirement of EUR 50 million or more and a guarantee ratio of up to 80 percent.
  
  
• In addition, it is intended to launch additional special programmes at KfW for companies that have temporarily experienced more serious financing difficulties due to the crisis and therefore do not have easy access to the existing support programmes. These special programmes are still subject to approval by the EU Commission.

Additional information from the Federal Ministry of Finance and the Federal Ministry of Economics and Energy can be found at the following links

• Website of the Federal Ministry of Economics and Energy
  
  
• Publication of the Federal Ministry of Finance and the Federal Ministry of Economics and Energy
  
  

ASSESSMENT

Initial experiences of clients show that their principal banks and other commercial banks show little willingness to assume the credit risks remaining after coverage by the public programmes in the current crisis situation. In particular, companies that were already experiencing financial difficulties prior to the corona crisis and that are now the first ones to have to contend with existential bottlenecks are therefore unlikely to benefit from this liquidity support. It is to be expected that a second stage of State liquidity assistance will be provided soon with direct liquidity supply by the Federation. The announcement of a new fund to supply SMEs also points in this direction.