The COVID-19 pandemic poses major challenges for many companies. In order to help the economy manage this crisis, the German government has decided on a package of measures based on the European Commission's Temporary Framework for State Aid.

These measures range from guarantees, to emergency aid and loans with support of the German state-owned development bank Kreditanstalt für Wiederaufbau (KfW), to equity investments. 

Here, we provide an overview of these support programs.

KfW Entrepreneur Loan and ERP Start-up Loan

The KfW-Unternehmerkredit (KfW Entrepreneur Loan) and the ERP-Gründerkredit (ERP Start-up Loan) have been available since 23 March 2020 to fund investments (in inventories), working capital and the acquisition of assets from other companies; this includes takeovers and active participations.

The KfW Entrepreneur Loan can be accessed by small, medium-sized and large companies, as well as freelancers who have been active on the market for at least five years. By contrast, the ERP Start-up Loan has a potentially larger customer base. It is available to small, medium-sized and large companies as well as start-ups, company successors and freelancers who have been active in the market for at least three years.

An applicant has to fulfil certain requirements to get a KfW-supported loan. As at 31 December 2019:

• the applicant must not have been in difficulty (definition in Article 2(18) of Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty)
• it must have reported sound financial circumstances
• its bank must not have had knowledge of any unregulated payments which have been outstanding for more than 30 days
• there must not have been any deferral agreements or breaches of covenant
• at the time of application, according to current planning (based on the assumption of a normalising economic situation), the company is likely to have the financial resources to pay its debts until 31 December 2020 and has to provide a positive going-concern forecast.

If these conditions are met and the application has been submitted to its bank properly, the company may get a loan with a maximum amount of EUR 1 billion per group of companies, but limited to:

• 25% of the annual turnover of the applicant company for 2019, or
• the current liquidity requirements of the applicant company for the next 18 months in the case of small and medium-sized companies, or 12 months in the case of large companies, or
• twice the wage costs of the company in 2019.

For loan amounts exceeding EUR 25 million, an overall limit is applied, being 50% of the company's outstanding total debt to banks or other creditors.

The interest rate on these loans ranges from 1% to 2.12% p.a., which already includes the margin of the company's bankers. The term of the loans depend on the loan amount. For loans up to EUR 800,000, the term of the loan is up to 10 years, while for loans over EUR 800,000, the duration of the loan is up to six years – in each case, with two redemption-free years on request. Where working capital loans are concerned, there is also the possibility of a term of up to two years with bullet repayment.

Due to current circumstances, KfW offers a risk participation/liability exemption of 90% for small and medium-sized companies and 80% for larger companies. The liability exemptions are secured by a federal guarantee. Despite this, customary bank security has to be provided.

To speed up the process, the assessment procedure has been simplified. For loans of up to EUR 3 million per company, the risk assessment will be carried out by the company's bankers only. For loans up to EUR 10 million, a simplified risk assessment or "fast track procedure" applies.

Until 30 April 2020, it was possible to apply for an existing loan or syndicated credit facility granted since 13 March 2020 to be replaced by KfW loans. These original loans were then regarded as permitted pre-financing.

KfW Special Programme: the Direct Participation for Syndicated Financing

The Sonderprogramm Direktbeteiligung für Konsortialfinanzierung or KfW Special Programme: Direct Participation for Syndicated Financing has also been available since 23 March 2020.

In this support programme, KfW participates in larger financings of investments or the working capital of medium-sized and large companies for a term of up to six years by either acting directly as a syndication partner, or participating indirectly through risk sub-participations. In each case, KfW will adopt the terms and conditions agreed by the financing partners, provided that they are considered by it to be appropriate. 

Moreover, KfW will offer the participating banks a refinancing option. In order to access this programme, the applicant company has to fulfil the same requirements as mentioned above. The risk participation of KfW usually amounts at least EUR 25 million, is but limited to:

• twice the 2019 wage costs
• 25% of the total turnover in 2019, or
• the liquidity requirements for the next 12 months. 

KfW may participate in the risk up to a maximum of 80% of the project financing and/or 50% of the company's total debt. 

KfW-Quick Loan

As some banks were not willing to take the remaining 10% or 20% of the risk in connection with the KfW Entrepreneur Loan and the ERP Start-up Loan, KfW has also been offering the KfW-Schnellkredit (KfW-Quick Loan) since 15 April 2020. This loan is 100% secured by a federal guarantee, no collateral has to be provided, and there is no risk assessment (either by the company's bankers or by KfW).

Support is available for investments and working capital of companies with more than 10 employees, which have been on the market at least since January 2019. Companies with participations of private equity investors are also eligible, unless significant investors receive distributions or withdraw capital during the term of the loan. 

In individual private equity cases, however, KfW seems to require a super senior position, which is dependent on the leverage and the general ability of the company to pay its debts. In general, the company must have been profitable on average over the years 2017 to 2019 – or in a shorter period if it has not yet been on the market since 2017. 

Support with a KfW-Quick Loan is excluded if the applicant company was in difficulties on 31 December 2019. It will also become immediately repayable if the company distributes profits or dividends during the term of the loan. However, distributions or withdrawals at market rates are possible for business owners (natural persons).

The total loan amount depends on the size of the company, but is in every case fixed to a maximum of 25% of the 2019 annual turnover of the group. Companies with up to 50 employees receive a maximum of EUR 500,000, whereas companies with more than 50 employees receive a maximum of EUR 800,000. The term of the KfW-Quick Loan is up to 10 years with two repayment-free years and the interest rate is fixed on rates available in the capital markets – currently at 3%.

Utilisation of KfW support programmes

Many companies have already benefitted from KfW programmes. Large enterprises like Adidas, Sixt and Puma have been supported by KfW.

Around 57,000 applications with a total volume of more than EUR 45 billion had already been received by KfW by the beginning of June 2020. Around 55,000 applications (total volume EUR 29 billion) have been approved. Since KfW-supported loans are currently available until 31 December 2020, there is no doubt that this amount will increase. 

The amount and rate of such increase will no doubt depend on the resilience and recovery of the global economy.