Public loans are provided by "development banks" - publicly owned and organized banks that exist at the national and state level.
Each financial tool or program offered by such public banks is accessible to foreign companies planning to invest in Germany and subject to the same conditions available to investors from Germany.
Interest-reduced loans may constitute a subsidy and can usually be combined with other public funding instruments. Please note that the total amount of combined cash incentives available may be reduced when combined with other programs.
Public Loan Programs on National Level
The KfW Group is the nationally operating development bank in Germany. The bank is organized into different departments - each specialized according to different target groups and available financing tools.
A number of different financing tools are available. These include promotional loan programs, mezzanine financing and equity from public sources. One of the most important loan programs in connection with financing an expansion is the Entrepreneur Loan (Unternehmerkredit).
The KfW Group is contacted via the applicant’s local bank which usually puts together its own financial package by using available KfW financing tools. Investors should have a German bank or a subsidiary of their domestic bank in Germany that is eligible to handle KfW loans.
State Development Bank Loan Programs
In addition to the KfW Group, each German federal state has its own development bank financing projects within the respective state. They offer their own financing programs with a special focus on promotional loans.
State development bank loans are generally tailored to meet the requirements of small and medium-sized enterprises (according to the EU Commission's SME definition).
Applications are made through the investor's local bank to the respective state development bank.
Loan Programs of the European Investment Bank (EIB)
The EIB provides loans and further financing tools (guarantees, equity) at favorable conditions.
To receive support, projects must be viable in predefined areas:
- Climate and ecological sustainability
- Innovation
- Infrastructure
- SMEs and Mid-caps
EIB loan programs are open to large enterprises as well as SMEs. As a rule, the EIB covers up to 50 percent of the total investment project costs. The minimum loan amount is EUR 25 million.
The main financing tools are intermediated loans. Credit lines to banks and financial institutions enable them to provide financial means to SMEs with eligible investment programs or for projects costing less than EUR 25 million.
EIB Loan Programs for Investment Projects
Public Guarantees
Companies can experience difficulties in securing financing when the required loans can only be collateralized to an insufficient degree. In these cases – with economically appropriate projects – public guarantees can replace or supplement any shortfall in securities.
How Public Guarantees Work
A public guarantee is a financial instrument that encourages financial institutions, i.e. commercial banks but also public banks, to offer loans to companies. Guarantee programs are specially designed to help enterprises obtain bank loans by dealing with the collateral constraint.
The guarantee functions as a promise by the guarantor to the lender that, in the event that the borrower defaults on payment, the guarantor will repay the lender a specified proportion of the foregone principal. In other words, guarantees will be given by a guarantor to pay all or part of the loan in the case of borrower payment default.
Different Public Guarantee Programs
Different types of public guarantee programs exist to support the loan financing of different types of investment projects within Germany. The guarantee program depends on the required amount, the investment region and the size of the company.
The maturity period is generally 15 years, or eight years for working capital loans. Commitments vouched for within public guarantees are normally subject to intensive individual examination by external assessors. Guarantee fees are paid annually. The fee paid is a percentage of the actual guaranteed amount at the beginning of the respective year. The fee is fixed over the whole duration of the loan.
Guarantee programs are available via a federal state's guarantee bank or the individual state government depending on the required guarantee amount.
Guarantees by Guarantee Banks
The public guarantee banks of the federal states in Germany are able to issue guarantees to small and medium-sized companies. They usually guarantee for amounts of up to EUR 2 million. They cover up to 80 percent of the loan amount.
An application has to be filed with the state development bank of the federal state the respective investment project is located in.
Guarantees by Individual State Governments
Public guarantees issued by individual state governments are available throughout Germany. Loan amounts, usually larger than EUR 10 million, are covered up to 80 percent
Applications have to be submitted to the respective state via the investor's bank before the investment starts. A state guarantee committee then deliberates on the application and issues a recommendation. As the final step, the State Minister of Finance decides on the allocation of a state guarantee.