In Germany, the coronavirus crisis is leading to supply shortages, employees not being able to work and revenue losses. It is not yet clear whether German legislators will rule on a temporary suspension of the obligation to file for insolvency.
In the interest of their own liability obligations, managing directors and management boards should therefore seek legal advice as soon as possible to avert liquidity problems.
Review the impact on existing financing arrangements
Good crisis management starts with the assessment of the potential impact of the pandemic on existing financing agreements, financial commitments and financial assistance pledges.
Reduce running costs and review contracts for termination options
In the interest of every company’s survival, all appropriate possibilities to reduce running costs must be utilized. As a CEO or management board, you are even obliged to do so.
German government pledges protective shield for companies and employees
On March 13, 2020, the Federal Minister of Finance Olaf Scholz and the Federal Minister of Economics Peter Altmaier presented a package of measures to limit the economic impact of the coronavirus and to serve as a protective shield for employees and companies in Germany. The package expands existing programs for liquidity assistance and makes it easier for companies to access loans on favorable terms from private banks.
Take advantage of the German government’s short-term coronavirus aid
The KfW (Kreditanstalt für Wiederaufbau) development bank has the role of facilitating the short-term supply of liquidity to companies in Germany. For this purpose, KfW will use the existing loans options for businesses, the self-employed and freelancers and improve the access conditions and terms for these loans. The details are as follows:
- KfW Entrepreneur Loan (for companies on the market for longer than 5 years) and ERP Start-up Loan (for young companies on the market for less than 5 years)
- The terms and conditions for the KfW Entrepreneur Loan (for companies on the market for longer than 5 years) and ERP Start-up Loan – Universal (for young companies on the market for less than 5 years) will be made more flexible by increasing assumption of risk (liability waivers) for the on-lending financing partners for working capital loans and by extending the instruments to large companies with an annual turnover of up to EUR 2 billion (previously: EUR 500 million). The higher degree of risk assumption of up to 80 percent for working capital loans of up to EUR 200 million can facilitate the willingness of financing partners to grant loans.
- In the case of the program for larger companies, the previous turnover limit of EUR 2 billion will be raised to EUR 5 billion. This “KfW Loan for Growth” will be modified and made available in future for projects by way of syndicate financing without being limited to a specific area (previously only innovation and digitalization). The risk assumption will be increased to up to 70 percent (previously 50 percent). This will facilitate the access of larger companies to syndicate financing.
- For companies with a turnover of more than EUR 5 billion, financial assistance will continue to be provided on a case-by-case basis.
- Expansion of the state development banks’ and guarantee banks’ scope for action
The scope for action of the state development banks and the guarantee banks will be expanded, among other things, by doubling the maximum guarantee amount of the guarantee banks to EUR 2.5 million and by raising the upper limit of working capital of the guarantee banks’ total liabilities from 35 to 50 percent.
- KfW’s special programs
KfW will create additional special programs for enterprises that do not have easy access to the existing aid programs.
Existing federal state aid also helps to avert the economic consequences of coronavirus
In order to cover short-term liquidity requirements, the existing funding instruments of the respective federal state also contribute to averting the economic consequences of coronavirus. Liquidity loans must be applied for from a German credit institution via the customer access mechanism.
You can find an overview of the financial assistance provided by your federal state on their respective homepages and on that of the Ministry of Economics of your federal state. Entrepreneurs can also obtain further information from their local Chamber of Industry and Commerce.
Also consider the instruments of corporate financing
In addition, you should review existing instruments for medium to long-term corporate financing, such as
- profit retention,
- capital increases,
- shareholder loans and
- other forms of investment, including possible government aid
and, if necessary, implement them correctly and in good time. We would be happy to assist you in determining the appropriate courses of action.
Making use of all your financing options: WINHELLER is here to assist you
In the interest of securing the continued existence of the company, for their employees’ and business partners’ sakes and in terms of their own liability obligations, managers should carefully examine all possible courses of action to avert liquidity problems in Germany. To this end it is essential,
- to take advantage of the possibilities offered by existing agreements,
- to obtain comprehensive information on the German government aid available to your company
- to consider alternative forms of corporate financing, and
- to use all possible courses of action in a meaningful chronological order to safeguard the continued existence of your company.
WINHELLER will be happy to assist you. We can support you in your crisis management
- to avoid liquidity problems,
- when reviewing your existing contracts for termination and deferral options,
- in making use of your opportunities to access government aid, and,
- in order to use all available instruments for corporate financing.
Please feel free to contact us anytime. You can easily contact us here.
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