The German COVID-19 countermeasures include an unlimited loan programme facilitated by KfW, the state-owned development bank. Since its announcement in mid-March, thousands of applications have reached the collaborating banks who draw a relatively optimistic picture.
The German federal government has taken several measures to soften the economic blow of COVID-19 one of which being the “KfW special programme 2020”, an unlimited, low interest-rate loan programme facilitated by the state-owned development bank. The programme is available to domestic (and depending on the business model foreign) companies through a streamlined application process, involving the companies’ house banks. The government’s and KfW’s efforts are complemented by the banks own liquidity assistance programmes who have made several billion Euros available for COVID-19 related loans.
Since the announcement of the special programme 2020 in mid-March, the KfW-loans have become the preferred choice for companies that are in financial difficulties due to COVID-19. Several thousand inquiries and applications have already reached the savings banks, cooperative banks and commercial banks authorised by KfW. According to KfW, applications to the programme so far, amount to almost EUR 9 billion.
For most of the loan applications (all < EUR 3 million), the house bank will conduct the risk assessment. For the time being, the house bank advances the KfW-loan out of their own funds, as the technical infrastructure for seamless facilitation is under construction. They receive an immediate refinancing guarantee by KfW. The programme is expected to be fully functional by 14 April 2020.
The banks are eager to facilitate the right product to their customers considering both the KfW options and their own loan programmes. The following weeks might show a shift from bridge financing to lasting and sustainable financing options considering an end to the crisis and time of economic recovery.
This overall very positive outlook given by most of the banks does not seem to be generally shared among borrowers. Particularly SMEs consider their house bank’s handling of the KfW-programme to be too bureaucratic. Creditworthiness might be attested through a company’s 2019 financial statement, but these are not due for SME’s within the first 6 months of the new year. Not all banks accept the last available financial statement from 2018.
The banks on the other hand criticize the remaining risk portion of 10%-20% not assumed by KfW. A 100% government-guarantee (which a 100% KfW-guarantee practically amounts to) was allegedly refused by the European Commission*, even though the German Federal Government suggested openness to the idea.
The effectiveness of the KfW special programme largely hinges on the resolve of these issues. An unlimited loan programme can only soften the economic blow of COVID-19 as far as the loans are factually distributed. A 100% risk assumption by the state currently can only be granted under the Economic Stabilisation Funds Act by the economic Stabilisation Funds (Wirtschaftsstabilisierungsfonds) but such measure are generally only available for larger businesses. The final version of the Act can be found here and a short summary of the stabilisation measures can be found here.
*in the meantime the European Commission agreed to allow a 100% government guarantee.