KfW: support for start-ups and SMEs through global loans to promotional institutions of the federal states

• Second pillar of the German Federal Government’s start-up aid in place
• KfW provides funds for financial assistance to promotional institutions of the federal states on behalf of the German Federal Government with immediate effect
• Goal: to support start-ups and smaller medium-sized enterprises with tailored mezzanine or equity financing

From today, global loans with a liability waiver are available for promotional institutions of the federal states to finance start-ups and smaller medium-sized enterprises from KfW Group. This means that Pillar II of the German Federal Government’s aid announced by Federal Minister for Economic Affairs and Energy Peter Altmaier and Federal Minister of Finance Olaf Scholz to support start-ups and small and medium-sized enterprises in overcoming the coronavirus crisis is now in place. Pillar I of the aid, known as the Corona Matching Facility, has been up and running since 14 May 2020 and is in high demand. VC funds can supplement their funds to finance start-ups under the Corona Matching Facility through KfW Capital or the European Investment Fund (EIF), always at equal terms (up to 50% of the financing round).

The goal of Pillar II is to support start-ups and smaller medium-sized enterprises that need financing but do not have access to Pillar I with tailored mezzanine or equity financing. The global loans, which come with a liability waiver, enable the promotional institutions of the federal states to refinance promotion instruments tailored to the needs of the individual federal states. The specific promotional structure varies from state to state. Financing through open or silent participations is possible, for example.

State Secretary at the Federal Ministry of Finance, Dr Jörg Kukies: “After the first pillar of our EUR 2 billion rescue package for start-ups with access to venture capital investors was launched in mid-May, we have now completed the second pillar of the rescue package. We are pleased to be able to address the urgent needs of small and medium-sized start-ups and SMEs without access to venture capital investors. In combination with the first pillar, which has met with considerable demand, this second pillar, through the integration and good networking of the promotional institutions of the federal states, ensures that we can provide tailored support for this promising and forward-looking sector while taking into account the federal structure of our country.”

Commissioner for the Digital Industry and Start-ups at the Federal Ministry for Economic Affairs and Energy, Thomas Jarzombek: “Start-ups and smaller medium-sized companies now have further access to the German Federal Government’s EUR 2 billion package of measures. Pillar II of the package of measures is in place thanks to the good cooperation between KfW and the promotional institutions of the federal states. We are thus supporting start-ups and smaller medium-sized enterprises in overcoming the coronavirus crisis and strengthening Germany as a location for technology and innovation.

KfW Chief Executive Officer Dr Günther Bräunig: “KfW, in cooperation with the German Federal Government and the promotional institutions of the federal states, has implemented the second component of the German Federal Government’s start-up aid at a rapid pace. In conjunction with the Corona Matching Facility, promotional funds are now available to ensure that jobs and the innovative power of smaller medium-sized enterprises, an important pillar of the German economy, can be secured.”

The financing assistance from Pillar II is available to companies (up to EUR 75 million in group sales) that were not yet in financial difficulties up until 31 December 2019 and can demonstrate a need for financing. Another requirement for the application is that the companies must be able to prove that they have a link to Germany. Subject to compliance with the small aid scheme (“Kleinbeihilferegelung”), support of up to EUR 800,000 per enterprise may be authorised, which may be supplemented with capital from other investors.

Funding commitments already granted to start-ups or smaller medium-sized enterprises by the promotional institutions of the federal states can be taken into account retroactively until 2 April 2020.