Liquidity support through “unlimited” loan guarantees – including KfW Quick Loan Program and initial emergency measures by German states (Bavaria, HH, NRW)

Last updated: May 5, 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 the KfW 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 percent for SMEs and 80 percent for large companies, it is aimed at mobilizing the willingness of companies’ principal banks to grant substantial amounts of loans to strengthen liquidity. The KfW Quick Loan Program is intended to accompany the granting of loans to SMEs with more than ten employees by way of 100 percent risk assumption, i.e., full indemnities of the companies’ principal banks. A tabular overview of all funding services and aid provided by the federal government is available here.

The German states have also initiated numerous funding measures. at: An overview of the programs of all states is available here. The emergency aid programs in Bavaria, Hamburg, and North-Rhine Westphalia are described in more detail below in the sections “Funding measures Bavaria,” “Hamburg is acting and helping,” and “NRW Safety net.”

1.         KfW Quick Loan Program

On the basis of the adapted framework for State aid (referred to as Temporary Framework) published by the EU Commission on April 3, 2020, the federal government has introduced comprehensive KfW Quick Loans with 100 percent indemnity.

The requirements for taking out a KfW Quick Loan are:

• Borrower is
  • a commercial enterprise or sole proprietor,
  • has more than ten employees,
  • has been operating on the market at least since January 1, 2019;
• borrower has reported profit in 2019 or on average over the last three years;
• the loan volume per corporate group is a maximum of 25 percent of annual sales in 2019, with a maximum of EUR 800,000.00 per group with more than 50 employees and a maximum of EUR 500,000.00 per group with ten to 49 employees;
• borrower was not in distress at December 31, 2019 and was in an orderly financial situation.

The interest rate for KfW Quick Loans is set uniformly on the day of the loan commitment, based on the development of the capital market. The term is up to ten years with a maximum of two grace years with subsequent linear repayment.

Certain funding exclusions need to be observed, including in relation to use of loan funds (i.e., may not be used for debt rescheduling, follow-up financing, etc.). In addition, profit and dividend distributions are not permitted during the term of the loan. Loans are approved without further credit risk assessment by the principal bank or KfW, such that the loan may be approved quickly and without any problems. In return, the bank will receive 100 percent indemnity from KfW, collateralized by a guarantee from the federal government. Loans committed under the KfW Quick Loan Program are to be called in one sum and within one month of commitment.

2.         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 corporate group, loans of up to EUR 1 billion may be granted. Loans are limited to 25 percent of the applicant company’s 2019 consolidated group 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 percent risk assumption (indemnities) for SMEs (up to EUR 50 million annual sales, less than 250 employees) and 80 percent risk 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 percent to 1.46 percent for SMEs to 2 percent to 2.12 percent for large companies.
• Working capital financing is offered at a fixed interest rate for the entire term and with terms of (i) up to 6 years and a grace period of up to 2 years for loans in excess of EUR 800,000, (ii) up to 10 years and a grace period of up to 2 years for loans up to EUR 800,000 and (iii) as a bullet maturity option with a term of 2 years.
• Investment financing and financing of acquisitions and participations is offered at a fixed interest rate for the entire term and with terms of (i) up to 6 years and a grace period of up to 2 years for loans in excess of EUR 800,000 and (ii) up to 10 years and a grace period of up to 2 years for loans up to EUR 800,000.
• 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.
• Funding exclusions need to be observed, according to which the loan funds may not be used for debt rescheduling, follow-up financing, etc. In addition, profit and dividend distributions are not permitted during the term of the loan.

3.         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 percent of projects in the future, but no more than 50 percent of 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 percent of 2019 sales or twice 2019 salary and wage expenses or the current funding requirements for the next 12 months.
• There are also funding exclusions, according to which the loan funds may not be used for debt rescheduling, follow-up financing, etc. In addition, profit and dividend distributions will likely not be permitted during the term of the loan.

4.         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 professionals 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

Collateral: standard bank collateral with 80 percent indemnities for companies’ principal banks

5.         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 for working capital may be made available. 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 of these regions, the federal government will participate in the collateralization of working capital financing and investments from a guarantee amount of EUR 50 million. Guarantees may currently cover a maximum of 90 percent of the credit risk, i.e., the companies’ respective principal bank must assume at least 10 percent of exposure.

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

6.         Emergency aid for self-employed individuals and micro-enterprises

Micro-enterprises, self-employed individuals, and professionals 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

7.         Combination of support services and programs - Cumulation of aid

In light of the large number of support programs made available by the various funding bodies, the question arises for companies whether a) cumulation is permissible at all and b) if so, to what extent.

First of all, it must be taken into account that the individual KfW programs have restrictions on cumulation. For instance, cumulation of a grant under the KfW Quick Loan with other KfW loans or with a grant from the Economic Stabilization Fund ("WSF") is excluded. It is also not possible for KfW to participate simultaneously in financing as a consortium partner in a consortium and as a refinancer of the other consortium partners by means of the pass-through loans discussed above - especially loans from the KfW Special Program. In contrast, the KfW Entrepreneur Loan and the ERP Start-up Loan can be combined with other KfW special programs unless they provide for full exemption from liability.

Although there is no absolute exclusion of cumulation under the program conditions for the KfW Entrepreneur Loan and the ERP Start-up Loan, in order to avoid overcompensation, any cumulation must be assessed on a case-by-case basis in accordance with the applicable State aid rules before an application is submitted. These are in particular the General Block Exemption Regulation (Regulation No. 651/2014 – GBER) and, specifically for the COVID-19 pandemic, the Communication of the European Commission C 2020/1863 of March 19, 2020 in the version of 3 April 2020 (C 2020/2215) and the federal regulations issued under it.

The GBER allows, in principle, cumulation of aid provided that different eligible costs are involved. Only where there is an overlap in eligible costs may the maximum aid intensities and aid ceilings applicable to the aid in question not be exceeded.

In concrete terms, this means that loans under the KfW special programs up to EUR 800,000 with a term of more than six years can be combined with other aid outside the "Federal Regulation on Small Grants 2020; in case of a combination with aid under the same "Federal Regulation on Small Grants 2020", the upper limit of EUR 800,000 per group of companies must be observed.

All other loans may be combined with other aid under the “Federal Guarantee scheme 2020” (Bundesregelung Bürgschaften 2020) for another loan, provided that the total amount of the loan per group of companies does not exceed either 25 percent of the annual turnover in 2019 or twice the company's wage costs or, if duly justified, the company's current liquidity needs for the next 12 (large companies) or 18 months (SMEs). In addition, these loans may be combined with aid under the "Federal Regulation on Small Grants 2020". In the case of aid which is not granted as a grant, the gross grant equivalent must be calculated.

In any case, a company must list applications for subsidies from other bodies or under other programs in a transparent and complete manner in order to avoid reclaims and/or allegations of subsidy fraud.

8.         Emergency funding

Regardless of the question of the cumulation of aid, the question of the required notification of aid to the EU Commission is also relevant. In cases where the BMWi has notified an aid scheme (such as the KfW Special Program 2020) and the EU Commission has approved it accordingly - as here under the federal regulations discussed above - no (further) notification of individual aid is required. The situation is different if the conditions of the respective support measure are to be deviated from: This case is not covered by the approval of the EU Commission and would have to be notified separately to the EU Commission.

According to the explanatory memorandum (BT-Drs. 19/18109), the WSF is not to be notified. Every single measure taken on the basis of the WSF would therefore have to be notified to the EU Commission. This is all the more relevant since, unlike the draft law, the text of the law speaks of 'reasonable' conditions and not of 'market-conform' conditions which exclude the existence of aid. In addition, the WSF also provides for the possibility of conditions and obligations by the EU Commission. This must be taken into account when applying for funding, as funding can only be granted after approval by the EU Commission.

9.         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.

Moreover, the Bavarian state government established an emergency aid program aimed at companies and freelancers who are experiencing financial difficulties and liquidity bottlenecks that threaten their existence as a result of the corona crisis.

• Emergency aid

Applications for emergency aid 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 aid 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 information on the emergency aid program and the application form are available on the website of the Bavarian Ministry of Economic Affairs at the following link: www.stmwi.bayern.de/soforthilfe-corona/

• Universal loan

Companies with annual (consolidated) sales of up to EUR 500 million may apply for loans of up to EUR 10 million per 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, indemnities for 80 percent are 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.

• Guarantees

Medium-sized commercial enterprises and members of the independent professions are eligible to apply. LfA guarantees may generally also be used for working capital. The maximum guarantee rate will uniformly be raised to 80 percent of the loan amount for 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 information                                                     

Additional 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

10.       Hamburg is acting and helping

On March 19, 2020, the Hamburg Senate and Hamburg Investment and Development Bank IFB launched an emergency aid program for SMEs and freelancers. This Hamburg 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 incurred a situation or a liquidity bottleneck that threatens their existence. Real, direct subsidies of EUR 2,500.00 for self-employed individuals, EUR 5,000.00 (less than 10 employees), EUR 10,000 (10-50 employees), and EUR 25,000.00 (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 the HamburgKredit-Liquidität loan, which may provide SMEs with loan volumes of up to EUR 250,000.00 each. In terms of interest and repayment terms, Hamburg intends to make maximum use of the European legal framework in borrowers’ interests.

The IFB development loan Culture and the IFB development loan Sports are intended to provide urgently needed operating funds of up to EUR 150,000.00 each to cultural institutions and sports clubs.

The emergency aid 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: www.hamburg.de/coronavirus/13737132/2020-03-19-bwvi-eckpunkte-schutzschirm/

. Additionally, IFB has published helpful information at www.ifbhh.de/foerderprogramm/hcs on 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. Application forms are also linked via

11.       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 the NRW.BANK Universal Loan to 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 percent 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 the guarantee scheme for 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, an NRW emergency aid program was 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 aid 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 the micro-mezzanine fund of 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 the state government and of NRW.Bank. The application forms for 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 under the KfW Special Program 2020 to assume the loan risks remaining after coverage by the public programs. Consequently, the availability of KfW quick loans for SMEs, which are intended to provide very rapid aid, is to be welcomed. To what extent the KfW Special Program 2020 and the KfW Quick Loans for SMEs will actually provide relief has to be monitored further In particular, however, companies that were already experiencing financial difficulties prior to the corona crisis and are now the first ones to contend with existential bottlenecks will therefore be unlikely to benefit from this liquidity assistance.

On our website you will find additional information on the corona crisis, updated daily.