KfW Research: German SMEs are proving to be adaptable – pressure on equity ratios is easing

• Adaptability of SMEs in the energy crisis has reduced pressure on equity ratios
• Around three fourths of businesses are optimistic about their equity ratio for 2023 as a whole
• Funding structure of SMEs is largely crisis-proof

Small and medium-sized enterprises in Germany are optimistic about their equity ratio for the year 2023, according to a current focus report by KfW Research. SMEs demonstrated flexibility in the energy crisis, just as they did during the COVID-19 crisis. Extensive measures aimed at reducing energy consumption and conversion to renewables enabled SMEs to more effectively manage the high energy costs. This has proven to be effective: According to a supplementary survey conducted as part of the KfW SME Panel, high energy costs play hardly a role, or no role at all, in the financial position of 81 % of all businesses, or can be easily absorbed financially despite the added burden. Besides the adaptation measures, price drops in energy markets, decreasing crisis impacts and the introduction of energy price caps have contributed to the relief.

Accordingly, in March 2023 German SMEs were also noticeably more optimistic about the development of their capital buffer in the new financial year. Nearly three fourths of enterprises (71 %) expect to be able to maintain or even improve their equity base in 2023 compared with the previous years. At the same time, significantly fewer SMEs expect their equity ratios to decrease (22 %) than was the case in September 2022 (36 %). Therefore, much indicates that SMEs have overcome the energy crisis with few bruises in terms of their equity base. However, it is still unclear how their equity ratios will evolve up to the end of the year, as this will depend on further economic developments.

“The funding structure of German SMEs has again proven to be resilient to crises”

, said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“Broadly speaking, SMEs continue to have a very good capital buffer. This helps them to better manage the tasks of the upcoming transformation. Nevertheless, we still need to keep an eye on businesses that are less well capitalised as they might require support in order to be able to realise investment in digitalisation and climate action in the future as well”

, added Köhler-Geib.

The current study can be downloaded from:

www.kfw.de/fokus (in German only)

The dataset:

The analysis is based on the data from the most recent survey wave of the KfW SME Panel (10 February-17 June 2022) and two supplementary surveys to the KfW SME Panel (1-9 September 2022 and 1-8 March 2023). The KfW SME Panel (KfW-Mittelstandspanel) has been conducted since 2003 as a tracking survey of small and medium-sized enterprises in Germany. The basic population includes all private-sector companies from all industries with annual turnovers of up to EUR 500 million. With a database of up to 15,000 companies a year, the KfW SME Panel is the only representative survey of the German SME sector, making it the most important source of data on issues relevant to SMEs.

You can find further information about the KfW SME Panel at:

www.kfw.de/mittelstandspanel