KFW emergency liquidity assistance to combat COVID-19

By Dr. Michael Juenemann, Pascal Leitmann

03-2020

To combat COVID-19 and its economic impact, German state-owned development bank Kreditanstalt für Wiederaufbau (KfW) has introduced the unlimited “KfW special programme 2020.” We have summarised the programme with regard to what is new, who can apply and how to do so.

1. What's new?

To combat COVID-19 and its economic impact, German state-owned development bank Kreditanstalt für Wiederaufbau (KfW) has introduced the unlimited “KfW special programme 2020.”

As announced by the Federal Government and implemented by KfW on 23 March 2020, the “KfW Special Programme” improves and considerably simplifies the access terms and conditions for the existing support programmes Entrepreneur Loan (KfW-Unternehmerkredit), Loan for Growth (KfW-Kredit für Wachstum) and ERP Start-up Loan (ERP-Gründerkredit).

Within a few days, companies have applied for loans amounting to more than EUR 3 billion.

Below we summarise the most important amendments as introduced by the programme:

  • KfW has elevated thresholds for existing loan programmes, namely:

    - Entrepreneur Loan – now up to EUR 1 billion per loan;
    - Loan for Growth – now up to EUR 100 million per loan;
    - ERP Start-up Loan – now up to EUR 1 billion per loan.

  • The Entrepeneur Loan programme is open to any company that is registered as an entity under German law.

  • The Loan for Growth programme is open to domestic as well as foreign companies which undertake projects in Germany related to innovation and digitalisation.

  • The ERP Start-up Loan programme is open to start-up companies registered as an entity under German law.

  • Interest rates: For all of the programmes above interest rates range between 1% and 1.46% p.a. for SMEs and between 2% and 2.12% p.a. for all other companies.

  • Risk assumption*: SMEs can now extensively use working capital with 90% exemption from liability (towards banks and savings banks; larger companies: 80%).

  • Streamlined application process: For loans up to EUR 3 million, KfW does not carry out its own risk assessment for companies. Instead, risk assessment is only carried out by the house bank to accelerate processes. For loans of up to 10 million euros, KfW operates a simplified risk assessment procedure.

  • Leaner documentation to be submitted (see below: How to apply?)

Introduction of a new programme: KfW instant loans for medium-sized enterprises

As we have previously reported here, the European Commission has cleared the path for a fully covered guarantee to SMEs. Following up on this, KfW has announced the “KfW instant loans for medium-sized enterprises” programme which will be available from 15 April 2020 onwards.

The default risk of loans issued under this programme will be 100% covered by KfW and additionally hedged by a guarantee from the German Federal Government. This significantly increases the chances of receiving a loan commitment, as the lenders are exempted from any default risk.

Below we have summarized the cornerstones of the programme, which is available for companies with more than ten employees that have been active on the market since at least 1 January 2019 below:

  • Credit volume is up to 3 monthly turnovers;

  • Credit volume is capped at EUR 800,000 for companies with more than 50 employees, and at EUR 500,000 for companies with up to 50 employees;

  • The applying enterprise is required to have made a profit - either in 2019 or on average over the last 3 years;

  • A current interest rate of 3 per cent with a term of ten years.

The credit approval process does not involve additional credit risk assessment by the bank or KfW. This enables loans to be granted quickly.

2. Who is eligible to benefit from the programme?

The KfW special programme 2020 is available since 23 March 2020 to companies that have temporary financing difficulties due to COVID-19. All companies that were not in financial difficulties on 31 December 2019 can apply for a loan.

The company had sound financial circumstances, the principal bank or consortium bank was not aware of any unregulated payment arrears of more than 30 days on the part of the applicant, and there were no deferral agreements or breaches of covenant.

Eligibility further depends on the specific program, each designed for different market participants (see above).

3. How to apply?

Applications are to be submitted to the respective KfW-authorised house bank/financial partner who will subsequently refer these to KfW. The main financial partners to KfW are savings banks (Sparkassen), cooperative banks and credit unions (Volks- und Raiffeisenbanken) and commercial banks.

The house bank is tasked with the examination of the borrower, assesses the proposals and decides whether to accompany the project and submits the application to KfW. After KfW has approved the loan (in case it exceeds 3 million euros), the financing partner passes the KfW funds on to the customer.

Documents to be submitted for KfW loans generally include a business plan, an investment plan and a profitability forecast, as well as risk assessments with self-disclosures. KfW has currently significantly simplified this extent of necessary documentation.

For those considering an application to the KfW special programme 2020, it is important to carefully assess which programme is suitable. KfW is instructed by the federal government to soften the economic blow of COVID-19 and show leniency. This is, however, not meant as a blank cheque, and application for the programme still must follow the rules.

*in the meantime the European Commission agreed to allow a 100% government guarantee.

Last reviewed: 14 April 2020