Member Article

Current status: March, 30, 2020

Corona-related sales slumps in many industries are leading numerous companies to experience short-term liquidity bottlenecks. To cover these shortages quickly, the federal government adopted theKfW Special Program 2020, which is available for commercial enterprises and members of the independent professions with immediate effect. Loan terms were improved and standardized yet again to make it easier for companies to access favorable loans. By assuming risks of 90 percentfor SMEs and 80 percentfor large companies, it is aimed at mobilizing the willingness of companies’ principal banks to grant substantial amounts of loans to strengthen liquidity. The emergency assistance programs of individual German states are described below in the sections “Funding measures Bavaria” and “Hamburg is acting and helping,” and “NRW Safety net.”

1. ERP START-UP LOAN UNIVERSAL AND KFW ENTREPRENEUR LOAN

Requirements and structure of these two loan programs have been largely harmonized, so that they now apply both to young SMEs that have been on the market for less than five years and to medium-sized and large companies that have been on the market for more than five years. Investment and working capital loans will generally be funded under the following conditions:

Loans are now available to companies of all sizes that are experiencing temporary financing difficulties due to the corona crisis.

• Per group of companies, loans of up to EUR 1 billion may be granted. Loans are limited to 25 percentof the applicant company’s 2019 sales or its current liquidity requirements for the next 18 months in the case of SMEs or 12 months in the case of large companies, or twice the company’s 2019 wage and salary expenses.
• Development bank KfW offers 90 percentrisk assumption (indemnities) for SMEs (up to EUR 50 million annual sales, less than 250 employees) and 80 percentrisk assumption (indemnities) for all companies above these limits. The indemnities are collateralized by full federal guarantees. Interest rates have been reduced and range from 1 percentto 1.46 percentfor SMEs to 2 percentto 2.12 percentfor large companies.
• Working capital financing is offered with terms of up to 5 years including a grace period of one year and as a bullet maturity option with terms of 2 years. Investment financing is offered with terms of up to 5 years including a one-year grace period.
• In addition, KfW offers companies’ principal banks simplified procedures for loan applications and for risk assessment. For loans of less than EUR 3 million, KfW assumes the risk assessment of companies’ principal banks. Loans up to EUR 10 million may be granted with simplified risk assessment.
  
  

2. KFW SPECIAL PROGRAM FOR SYNDICATED FINANCING

KfW is expanding its financing offering for companies that are experiencing temporary financing difficulties due to the corona crisis with the KfW Special Program 2020 “Direct Participation for Syndicated Financing.”

• Under this funding program, KfW will offer risk assumption of up to 80 percentof projects in the future, but no more than 50 percentof the risks of the total debt.
• KfW participates in syndicated financing for investments and working capital with terms of up to 6 years.
• KfW participates pari passu with market conditions, meaning that the financial terms are provided by the financing partner and assumed by KfW.
• The KfW risk share is at least EUR 25 million and is limited to 25 percentof 2019 sales or twice 2019 salary and wage expenses or the current funding requirements for the next 12 months.
  
  

3. ERP START-UP LOAN START-UP FUNDS

In addition, the established instrument of ERP Start-up Loan Start-up Funds is available for small companies that have been in existence for less than 5 years:

Target group: Small commercial enterprises and freelancers up to 50 employees and maximum annual sales or annual balance sheet total of EUR 10 million, which have been in existence for less than 5 years

Maximum amount: maximum EUR 30,000.00 for working capital (total debt capital requirement maximum EUR 100,000.00)

Term: maximum 10 years with 2-year grace period

Collaterals: Standard bank collaterals with 80 percentindemnities for principal bank

4. GUARANTEES

Where required, companies’ principal banks may also make use of the guarantee scheme. These may not be restructuring cases or companies in financial difficulties.

For companies that had sustainable business models until the crisis, guarantees may be made available for working capital. Up to an amount of EUR 2.5 million, these guarantees will be processed by the guarantee banks; beyond this amount, the German states or their development institutions are responsible. From a guarantee amount of EUR 20 million upwards, the federal government will participate in the guarantee commitment in the structurally weak regions at a 50:50 ratio. Outside these regions, the federal government will participate in collateralizing working capital financing and investments from a guarantee amount of EUR 50 million and with a guarantee ratio of up to 80 percent. Guarantees may cover a maximum of 80 percentof the loan risk, i.e., the companies’ respective principal bank must assume at least 20 percentof exposure.

Inquiries for a financing project up to EUR 2.5 million may also be made quickly and free of charge via the guarantee banks’ financing portal.

5. EMERGENCY ASSISTANCE FOR SELF-EMPLOYED INDIVIDUALS AND MICRO-ENTERPRISES

Micro-enterprises, self-employed individuals, and members of the independent professions will receive a one-off payment for three months, depending on the size of their businesses, of up to EUR 9,000.00 (up to five employees) or up to EUR 15,000.00 (up to ten employees) to ensure their liquidity. This is intended in particular to secure applicants’ economic existence and to bridge acute liquidity bottlenecks due to ongoing operating costs. Furthermore, a draft law of the federal government would grant consumers and micro-enterprises disadvantaged by the effects of the COVID-19 pandemic a right to refuse performance for material continuous obligations until June 30, 2020.

Additional information from the Federal Ministry of Finance and the Federal Ministry for Economic Affairs and Technology is available at the following links:

• Website of the Federal Ministry for Economic Affairs and Energy
• Publication of the Federal Ministry of Finance and the Federal Ministry of Economics and Energy

FUNDING MEASURES BAVARIA

In addition to the federal funds, Bavaria will set up a special fund of up to EUR 10 billion to assist with the consequences of the corona crisis. Development bank Förderbank Bayern (LfA) will help companies to overcome the corona crisis by providing loans and assuming risks. A fundamentally viable business model and the willingness of the companies’ principal banks to integrate the LfA funding offers into the overall financing are prerequisites for supporting the companies. Loans under the following programs supported by LfA must be applied for at and will be paid out by the companies’ principal banks.

In addition, the Bavarian state government established anemergency assistance programaimed at companies and freelancers who are experiencing financial difficulties and liquidity bottlenecks that threaten their existence as a result of the corona crisis.

 

• Emergency assistanceApplications for emergency assistance may be submitted by commercial enterprises and self-employed members of the independent professions (up to 250 employees) having a place of business or work in Bavaria. The emergency assistance is graduated according to the number of employees as follows:

   

  • up to 5 employees EUR 5,000.00,
  • up to 10 employees EUR 7,500.00,
  • up to 50 employees EUR 15,000.00,
  • up to 250 employees EUR 30,000.00.Additional informationon the emergency assistance program and the application form are available on the website of the Bavarian Ministry of Economic Affairs at the following link:https://www.stmwi.bayern.de/soforthilfe-corona/.

   

• Universal loanCompanies with annual (consolidated) sales of up to EUR 500 million may apply for loans of up toEUR 10 millionper project for investments, the acquisition of warehouse space, and general working capital requirements, including the rescheduling of short-term liabilities. If a loan of up to EUR 4 million cannot be sufficiently collateralized by banks, an80 percent of indemnitiesare possible for companies with consolidated sales of up to EUR 500 million. Simplified application and processing procedures for risk assessment are also applying to all LfA funding loans with indemnities of up to EUR 500,000.00. Fewer documents will therefore be necessary for these cases, so that balance sheets and the attachments relating to personal and financial circumstances will not have to be submitted.
• GuaranteesMedium-sized commercial enterprises and members of the independent professions are eligible to apply. LfA guarantees may generally also be used for working capital. The maximumguarantee ratewilluniformlybe raised to80 percentof the loan amountfor guarantees for working capital, rescue and reorganization, and consolidation loans. The same simplified application and processing procedures as for indemnities also apply to LfA guarantees up to EUR 500,000.00. LfA guarantees will be assumed up to an amount of EUR 5 million. Additionally, State guarantees may be assumed beyond this amount.
• Acute loan

 

Applications for acute loans of up to EUR 2 million may be filed by medium-sized commercial enterprises. Consolidation concepts will generally not have to be submitted if the company’s principal bank confirms the reason for consolidation to LfA when filing the application.

Additional informationAdditional information on the funding programs is available on the website of the Bavarian Ministry of Economic Affairs and the Bavarian Development Bank (LfA) at the following links:

https://www.stmwi.bayern.de/coronavirus/https://lfa.de/website/de/aktuelles/_informationen/Coronavirus/index.php

HAMBURG IS ACTING AND HELPING

On March 19, 2020, the Hamburg Senate and Hamburg Investment and Development Bank IFB launched anemergency assistance programfor SMEs and freelancers. ThisHamburg Corona Emergency Aid [Hamburger Corona Soforthilfe, HCS]is available in cases where companies or freelancers as addressees of the municipal corona general decree have directly become subject to a situation or a liquidity bottleneck that threatens their existence. Real, direct subsidies of EUR 2,500 for self-employed individuals, EUR 5,000 (less than 10 employees), EUR 10,000 (10-50 employees) and EUR 25,000 (51-250 employees) will be available.

In addition to the HCS program, the Hamburg Senate announced that, jointly with IFB, it will significantly expand existing IFB funding programs and improve the terms so as to individually tailor the KfW funding programs to Hamburg’s needs. Components are in particular theHamburgKredit-Liquiditätloan, which may provide SMEs with loan volumes ofup to EUR 250,000each. In terms of interest and repayment terms, Hamburg intends to make maximum use of the European legal framework in borrowers’ interests.

TheIFB development loan Cultureand theIFB development loan Sportsare intended to provide urgently needed operating funds ofup to EUR 150,000each to cultural institutions and sports clubs.

The emergency assistance program of the Hanseatic City of Hamburg further includes

• the above-mentioned adjustments to the guarantee schemes,
• interest-free deferrals of income tax, corporate income tax, and value-added tax, as well as the reduction of quarterly advance payments due and the waiver of enforcement measures and late payment surcharges on existing tax arrears,
• an intended state decree on trade tax and state and municipal taxes,
• fee-based assistance for traders relating to possible deferrals and waivers of municipal fees,
• interest-free deferrals of rent for commercial tenants in municipal properties,
• financial security for grant recipients,
• simplifications in public procurement law, and
• ensuring liquidity for contractors and suppliers of the city by paying incoming invoices immediately and not only when they are due/after the city has exhausted the payment terms.
  
  

ADDITIONAL INFORMATION

Additional information on HCS is available on the website of the Hamburg Senate at the following link:https://www.hamburg.de/coronavirus/13737132/2020-03-19-bwvi-eckpunkte-schutzschirm/[in German]. Additionally, IFB has published helpful information athttps://www.ifbhh.de/magazin/news/coronavirus-hilfen-fuer-unternehmenon how Hamburg-based companies may prepare for the application process until optimally coordinated application forms are available. In particular: Management analysis and/or annual financial statements for the past three years; description of the extent to which the company/businessperson is affected by the COVID-19 pandemic and estimated liquidity requirements to cover current fixed costs.

NRW SAFETY NET

In North Rhine-Westphalia, the state parliament adopted a law on establishing a special fund (NRW Safety Net Act), so that an amount of up to EUR 25 billion is now available in addition to the federal government’s State aid to cushion the direct and indirect consequences of the corona crisis. The legislative package includes the following emergency measures:

• Expansion of theNRW.BANK Universal Loanto companies with annual sales of up to EUR 500 million, start-ups, and freelancers by increasing the indemnities in favor of companies’ principal banks to 80% for the duration of the COVID-19 pandemic. In addition, the previously required minimum loan amount will be suspended. In the case of indemnities of up to EUR 250,000.00, the loan commitment is generally supposed to be made within 72 hours.
• Expansion of theguarantee schemefor economic development by EUR 4.1 billion to EUR 5 billion, thereby increasing the guarantee ratio to 90 percent. Loans of up to EUR 2.5 million per company will be collateralized by guarantee bank Bürgschaftsbank NRW and loans of EUR 2.5 million or more, including for large companies, by the state guarantee program. The guarantee bank allows for 72-hour express guarantees.
• Assistance for small and micro-enterprises and self-employed individuals: In addition to the federal program, anNRW emergency assistance programwas established under which small enterprises with 10 to 50 employees are granted subsidies of EUR 25,000.00. Businesses that were financially sound prior the crisis and suffered financial losses due to the COVID-19 pandemic are eligible to apply. In addition, North Rhine-Westphalia will transfer the federal government’s corona emergency assistance for micro-enterprises and self-employed individuals as quickly as possible.
• Small enterprises and start-ups will also have the option of applying for equity capital to strengthen liquidity from themicro-mezzanine fundof up to EUR 75,000.00 at investment agency Kapitalbeteiligungsgesellschaft (KBG) in Neuss. Companies are not required to provide collateral.

ADDITIONAL INFORMATION

Information on the details of the NRW state development programs can be found on the websites of thestate government(https://www.land.nrw/de/pressemitteilung/nrw-soforthilfe-2020-fuer-kleinbetriebe-freiberufler-solo-selbststaendige-und)and ofNRW.Bank(https://www.nrwbank.de/de/corporate/presse/corona-hilfe-nrwbank.html). Theapplication formsfor the NRW Emergency Aid Program will be available from March 27, 2020, including on the NRW Ministry of Economic Affairs website at www.wirtschaft.nrw/corona.

ASSESSMENT

Initial experiences of clients show that in the current crisis situation, companies’ principal banks and other commercial banks have so far exhibited little willingness to assume the loan risks remaining after coverage by the public programs. In particular, companies that were already experiencing financial difficulties prior to the corona crisis and are now the first ones to contend with existential bottlenecks are therefore unlikely to benefit from this liquidity assistance. We will continue to monitor to what extent the KfW Special Program 2020, including its relaxation of the minimum requirements for a company’s creditworthiness and credit assessment, will help to remedy the situation.

 

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