Corona crisis in Germany — what state aid is available for companies and start-ups? (March 19, 2020)
An overview from a German lawyer.
I. Preliminary remark
This article is dedicated to government support for companies against the background of the corona crisis. It is about the financial benefits of the country or the EU, but not about adjustments or changes under labor law, such as making short time work easier.
Please note: This article provides an overview of state aid actions, which reflect the status of Thursday, March 19, 2020. Given the dynamic situation, changes can occur very quickly. As far as possible, variations are considered within one day. It is not legal advice. What is right here may be out of date the next day. As always: Do your own research! However, the contribution is intended as a guide.
On March 19, 2020, media reports announced that the Federal Government would like to help solo self-employed people and small businesses with an emergency fund of 40 billion euros. Direct grants and loans are to be granted from these funds. As of today, Berlin-based companies can apply to the Investitionsbank Berlin for “liquidity aid special case Corona” at the state level. Besides, aid programs worth billions are in preparation in some federal states. The EU is announcing a bond purchase program of EUR 750 billion, which should also include the purchase of private corporate bonds.
II. Liquidity aid granted by the Federal Government
The Federal Government has decided on a package of actions to support companies in coping with the Corona crisis — “A protection debt for employees and companies”. The program is based on four pillars. The third pillar is of interest, a “billion protection debt for companies and businesses”. The starting point is the consideration that companies can get into financial difficulties through no fault of their own due to disruptions in the supply chains or due to a significant drop in demand. Above all, the availability of liquid funds can deteriorate. Existing liquidity aid programs are initially to be expanded to make it easier for companies to access cheap loans from private banks to remedy the problematic situation. The Staatliche Förderbank KfW has a key task. It is intended to facilitate the short-term supply of funds to companies. KfW will use the following existing credit programs on the way to bank transfer and in the context of syndicated financing and improve the access conditions and conditions for companies. Federal Finance Minister Olaf Scholz emphasized in this connection that the volume of the measures is not limited.
The following promotional instruments are available for companies to cover short-term liquidity requirements:
1. Given the Corona crisis, adjusted loan for companies that have not been on the market for five years:
ERP-Gründerkredit Universell — Promotion of investments, operating resources as well as material and goods stores; up to EUR 25 million will be paid out (or even more in special cases)
Improvements in terms of KfW Corona help for companies:
- Risk assumption of up to 80% for working capital loans with a credit volume of up to EUR 200 million
- Opening of the liability exemption also for large companies with an annual turnover of up to 2 billion euros
2. Because of the Corona crisis, adjusted loans for companies that have been in the market for at least five years:
· KfW-Unternehmerkredit — financing of investments and working capital; up to EUR 25 million will be paid out per project;
Improvements in terms of KfW Corona help for companies:
- Risk assumption of up to 80% for working capital loans with a credit volume of up to EUR 200 million
- Opening of the liability exemption for large companies with annual sales of up to 2 billion euros
· KfW-Kredit für Wachstum — financing investments and resources in the areas of innovation and digitization for domestic and foreign companies with sales of up to 2 billion euros; comfortable access to credit because KfW bears part of the risk.
Improvements in terms of KfW Corona help for companies:
- Temporary expansion to general corporate finance including operating funds through syndicated financing
- Increase the sales limit for eligible companies to EUR 5 billion
- Increase the proportionate risk assumption up to 70%
KfW entrepreneur and ERP start-up loans can be applied for from KfW via banks and savings banks. Information on this is available on the KfW website and at all banks and savings banks. The KfW hotline for commercial loans: 0800 539 9001.
It is, therefore, essential to contact the bank and ask for support. However, most banks do not yet have any more precise information. Nevertheless, the old saying from Sesame Street applies: Who does not ask remains stupid. I will stay tuned and inform about further developments
3. KfW special programs
Besides, KfW will prepare an individual plan for small and medium-sized companies as well as for large companies and introduce actions as soon as possible. The risk assumption for investment funds (exemptions from liability) is significantly improved and amounts to up to 80% for operating resources, and even up to 90% for investments. These should also be available to companies that are temporarily experiencing financial difficulties (crisis-appropriate increase in risk tolerance) due to the crisis. KfW will also offer consortium structures for these companies. However, the launch of these special programs is subject to approval by the European Commission. The new KfW special program is scheduled to start next week. Applications can already be submitted to the house banks.
4. The aid package for self-employed and small companies
According to media reports, the Federal Ministry of Finance and the Federal Ministry of Economics want to secure the solvency of so-called solo self-employed persons (self-employed persons without employees) and small companies through direct grants and loans. A total of 40 billion euros are to be made available. Ten billion euros are initially earmarked for direct grants to companies in need, and 30 billion euros as loans. However, the specific amounts may still change. The rescue package is to be put together under the name “Solidarity Fund” as a special federal fund.
Guarantees for working capital loans can be provided for economically sound companies. Up to an amount of EUR 1.25 million, these are processed by the guarantee banks, and the federal states and their funding institutions are also responsible. From a guaranteed amount of 20 million euros, the federal government participates in the structurally weak regions in the guarantee obligation in a ratio of fifty to fifty. Guarantees can cover a maximum of 80 percent of the credit risk, which means that the respective house bank must assume at least 20 percent of its liability.
6. Export credit guarantees (so-called Hermes covers)
The Federal government continues to provide export credit guarantees (so-called Hermes covers) for exports to China or in coronavirus risk areas. The contact persons for further questions are the federal mandataries of Euler Hermes AG in Hamburg.
7. The situation of venture capital start-ups (start-ups in the context of venture capital)
In the area of liquidity aid, the question arises as to what extent such companies can also expect government funding that is currently financed substantially through venture capital, and that may not yet have made any profits. After all, some commentators have emphasized that it is now necessary to help “actually healthy” companies that would be profitable without the Corona crisis.
More detailed information is still pending. KfW´s previous promotional instruments also provide start-up loans. The ERP-Gründerkredit Universel, for example, should, as shown, in the sense of Corona help, among others, and can be improved through increased risk assumptions. Also, according to the KfW, no equity capital required to avail of this loan. However, it depends on the credit rating used by the respective credit institution that concludes the contract with the company and establishes contact with KfW. A start-up that is mainly financed through venture capital could be given inadequate creditworthiness and, as a result, insufficient suitability for KfW products. Here it can also be observed to what extent the requirements for start-ups are more precisely defined. According to a rumor that has not been verified, the banks are aware of this problem, and the possibilities and rules for financing companies, which is largely based on a business plan, are to be further developed. It is recommended to all start-ups to approach banks, especially development banks.
III. Liquidity aid granted by the federal states
In addition to the ERP and KfW offerings, the state funding institutes also offer low-cost working capital financing or corresponding working capital components in the promotional loans. For details, please contact the funding institutes of the federal states:
► Bavaria: LfA Förderbank Bayern offers loans and assumption of risk in the corona crisis
In particular, the Bavarian state government has developed an emergency aid program to support Bavarian companies that have been threatened by the coronavirus and which is in dire straits and liquidity shortages. Both commercial companies and freelancers who have a business or ensure employment in Bavaria are eligible to apply.
Emergency aid is granted according to the number of people in employment:
- Up to 5 employees: 5,000 euros
- Up to 10 people in employment: 7,500 euros
- Up to 50 people in employment: 15,000 euros
- Up to 250 people in employment: 30,000 euros
The government districts and the state capital of Munich, as the locally responsible authorities, are responsible for processing and executing the applications. The local authority immediately transfers the emergency aid to the applicant´s account.
Also, the Bavarian state government refers to the guarantee programs of the LfA Förderbank and the Bürgschaftsbank Bayern, as well as the increase in counter-guarantees by the Free State of Bavaria.
Finally, the responsible tax office can pay tax hours and set the advance payment of trade tax to zero. The common deferred interest of 0.5 percent per month will be waived until December 31, 2020, if the debtor of due tax payment is directly affected by the effects of the coronavirus.
► Baden-Württemberg: The state bank for Baden-Württemberg “L-Bank” offers specific programs when the economy and crisis situations slow down
► Berlin: Information on support for Berlin companies in the event of liquidity shortages due to the coronavirus by the Investitionsbank Berlin (IBB) is available.
Applications for Corona liquidity support can now be submitted to Investitionsbank Berlin. Essentially, this is the “Liquidity Aid BERLIN” funding program. It grants loans to co-finance restructuring actions for companies in difficulty. Rescue loans can be applied for (also without interest) in the amount of up to EUR 0.5 million, restructuring loans in the amount of up to EUR 1 million. The term is six months or five years. Small and medium-sized companies with business premises in Berlin are supported. However, they must have already completed their start-up phase of three years. However, these primary conditions may also be adapted and changed to the current situation.
Information is available via the IBB business promotion hotline at 030 / 2125–4747 and Wirtschaft@ibb.de.
► Brandenburg: The Investitionsbank des Landes Brandenburg (ILB) gives an overview of the effects of the coronavirus on Brandenburg companies and provides contact points in connection with economic difficulties.
The Brandenburg Ministry of Economic Affairs, Labor and Energy will hold a round table on March 19, 2020, with chambers, trade associations, unions, and business development institutions to prepare the decision on which government support and to what extent will be required.
► Bremen: Bremer Aufbau-Bank draws particular attention to its task force for appropriate advice to companies in difficulty.
The Bremer Aufbaubank has approved EUR 10 million as an additional budget for Bremen companies, although this amount could be increased. These funds are primarily intended to benefit affected (micro) companies, freelancers, and artists.
► Hamburg: The Hamburgische Investitions- und Förderbank (IFB) wants to help companies with certain actions.
Given the Corona crisis, Hamburg is making a massive aid package available for companies and institutions. A ten-point program was presented on Thursday by Senator Andreas Dressel (SPD), Senator Carsten Brosda (SPD), and Senator Michael Westhagemann. The package of actions provides, among other things, quick and unbureaucratic help for companies, especially for small and medium-sized companies, for freelancers, for private operators of cultural institutions and sport. Self-employed and small business owners should receive grants of 2,500 euros for one-person businesses and up to 25,000 euros for companies with 51 to 250 employees.
► Hesse: The Wirtschafts- und Infrastrukturbank Hessen (WiBank) lists relevant support options prepared by the State of Hesse.
► Mecklenburg-Western Pomerania: A suitable product from Bürgschaftsbank MV GmbH appears the BMV loan.
The Mecklenburg-Western Pomerania Ministry of Economic Affairs, Labor, and Health has announced a package of 100 million euros for the economy in Mecklenburg-Western Pomerania.
The program also includes repayable grants:
· Repayable grants for small businesses and freelancers up to 20,000 euros (sufficient by the Society for Labor Market and Structural Development — GSA)
· Repayable grants for SMEs up to EUR 200,000 to cover operational expenses
· Accelerated payment of grants within a week
Please also note the corporate hotline of the Ministry of Economy: 0385 / 588–5588.
► Lower Saxony: The NBank gives the most important contact details in the current situation.
A loan program with quick liquidity support at NBank is in preparation for small and medium-sized companies. The state of Lower Saxony ensures the security of the program, which is to be awarded directly by the NBank and not through a house bank.
In addition, a Corona aid program for micro-companies with fewer than ten employees and less than two million annual sales is in progress: For six months, subsidies of up to EUR 100 million are to be granted. This grant is also intended to benefit family businesses. The funding for individual companies should amount to up to 20,000 euros. The funding rate of 50 percent remains. It means that the maximum funding amount of EUR 20,000 can be called up if the economic damage to the individual company is at least EUR 40,000
► North Rhine-Westphalia: NRW.Bank offers various liquidity aids
The State Government of North Rhine-Westphalia wants to provide 25 billion euros in economic aid to cushion the consequences of the corona crisis and secure jobs.
The special fund corresponds to around a third of the previous state budget and is to be adopted in the next state parliament session.
• The state government will draw up a supplementary budget solely to deal with the pandemic and its consequences and provide for a special fund of around 25 billion euros.
• In addition to the announced federal grant program, which is urgently needed above all as emergency aid for small businesses, the state government will provide tailored state funds with a grant-like character wherever this is necessary due to special features in North Rhine-Westphalia. It is essential to closely interlink with the federal program to be able to help small entrepreneurs, solo self-employed, and cultural workers accurately.
► Rhineland-Palatinate: The Investitions- und Strukturbank Rheinland-Pfalz (ISB) primarily points out its program loans
► Saarland: Saarländische Investitionskreditbank AG refers to KfW loans and guarantees; it also announces the “Sofort-Saarland Credit” program at the end of March
The state government of Saarland is launching a 10 million euro loan program to help companies in specific cases overcome difficulties due to the Corona crisis. It should be available at the end of March 2020.
► Saxony-Anhalt: The Investitionsbank Sachsen-Anhalt has launched an information page for companies, where it refers in particular to the IB SME loan and the IB start-up loan
► Saxony: The Sächsische Aufbaubank has been referring to its new hotline 0351 4910–1100 for advice on companies regarding the coronavirus since March 11, 2020
According to the Minister for Economic Affairs Martin Dulig, among other things, a special program for small businesses and freelancers with up to five employees who have a registered office or a permanent establishment in Saxony and are experiencing a decline in sales due to the corona crisis. An interest-free subordinated liquidity aid loan of up to EUR 50,000 is considered, in exceptional cases, up to EUR 100,000 with a term of up to eight years. The loans are to be made available for the first three years without repayment. The more precise conditions and the application procedure are still being worked out.
► Schleswig-Holstein: The Investitionsbank Schleswig-Holstein (IB.SH) presents an offer for advice on economic aspects of the corona crisis for companies
The Investitionsbank Schleswig-Holstein points out that the “Schleswig-Holstein Financing Initiative for Stability” is now being tailored to the needs of companies in the Corona crisis. For this purpose, the offers of the IB.SH, the Bürgschaftsbank Schleswig-Holstein as well as the medium-sized investment company Schleswig-Holstein are bundled to ensure optimal financing. This action is aimed at small and medium-sized enterprises (SMEs) and offers a financing volume of up to EUR 2,000,000. The IB.SH emphasizes that up to a sum of EUR 750,000, the application review takes place in the express procedure.
► Thuringia: Die Thüringer Aufbaubank lists information for companies.
The development bank increased the maximum loan amount of the Thuringian consolidation fund for small and medium-sized companies to two million euros and opened it for the entire commercial economy, including hospitality, trade fair services and representatives of business-related professions; Regulations on a simplified application procedure are to be published shortly.
Also, Thüringer Rentenbank offers liquidity loans for companies in agriculture, viticulture, and horticulture. In the application to the house bank, justification should suffice as to why the corona crisis triggered the liquidity requirement.
Thuringia´s Economics Minister Wolfgang Tiefensee has also announced an aid program for the Thuringian economy.
Among other things, an emergency aid program is planned, through which small and micro-businesses and freelancers can receive a one-off financial grant. Companies with up to five employees should receive up to 5,000 euros, companies with up to ten employees up to 10,000 euros and companies with up to 50 employees up to 30,000 euros. However, coordination with the federal government, which has announced a similar program, is still necessary.
Further information is also available from the funding database of the Federal Ministry of Economics. Here you can use the search function to get an overview of funding programs of the federal government, the states, and the European Union based on a topic, an area, or the zip code. Under the keyword “Corona” access to the promotional loans from the federal states listed above.
IV. The Proposal by the EU Commission for a temporary legal framework for economic aid
The EU Commission has submitted to the member states a draft temporary legal framework for economic development during the Corona crisis. It is to be based on the contractual clause of Article 107 (3) (b) TFEU, which provides that aid to remedy a severe disturbance in the economy of a Member State can be considered compatible with the internal market.
Competition Commissioner and Vice-President of the EU Commission, Margrethe Vestager, emphasized the two common goals of the member states: to maintain the liquidity of the companies and to ensure the existence of the internal market in the crisis.
The proposal speaks of four types of eligible aid, namely
1. direct grants or tax breaks of up to EUR 500,000 per company to meet urgent liquidity needs,
2. subsidized guarantees for corporate bank loans,
3. subsidized interest rates, whereby the interest rates for SMEs and larger companies should be different,
4. Payment of subsidies via banks directly to the recipients (emphasis on the crucial role of banks as intermediaries between states and companies in overcoming the upcoming economic difficulties).
The EU Commission emphasizes that this aid should be granted to companies that only got into economic difficulties after December 31, 2019. It is to ensure that taxpayers do not relieve those companies that are in financial difficulties regardless of the Corona crisis. However, there is again the problem that start-ups that do not write “black” but by their nature “red numbers” may not fall under this category — it will probably be a question of whether as of December 31, 2019 funding was still secured. It is a guess.
The EU Commission now awaits the comments of the member states and hopes to be able to adopt the regulations in the next few days.
V. ECB bond emergency purchase program; EUR 750 billion
The ECB has announced that it intends to purchase both private and public bonds worth EUR 750 billion as part of an emergency purchase program. The program is to be called the “Pandemic Emergency Purchase Program” (PEPP). The bond purchases are to be made at least until the end of 2020 — but in doubt until the Governing Council considers the crisis to be over.
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