16. Germany

German SMEs have felt the burden of the pandemic, but generally they have come through the crisis years with few bruises. Rapid adjustments to business models and, above all, strong growth in digital sales of products and services have often proved to be lifesaver and prevented worse outcomes (KfW, 2021[1]).

Despite all the coronavirus worries, 2021 was a very good year for SMEs. Seemingly unimpressed by the pandemic, sales and employment returned and employment returned to pre-crisis levels.

At the start of 2022, businesses confronted the current crisis on a solid foundation (KfW, 2022[2]). Even as the burdens from the pandemic are easing, the economic situation has worsened as a consequence of Russia’s war of aggression against Ukraine. The escalation of the conflict has led to enormous uncertainty.

The impact of the war, in combination with directly and indirectly perceivable consequences of sanctions (such as loss of export markets, energy price increases, rising inflation, supply chain disruptions and production losses), has been afflicting many businesses (KfW, 2022[2]). Despite all stress factors, the damage to SMEs is still moderate.

However, the economic outlook for 2024 is muted, prospects for investment and turnover are dim and, not least, businesses are feeling the implications of tighter monetary policy (KfW, 2023[3]).

It became apparent already at the end of the last year that the situation in the credit market was becoming more difficult for businesses. They reported that banks were taking an increasingly restrictive position in loan negotiations (KfW, 2023[3]).

To some extent, this reflects the now higher interest rate environment, which companies might perceive as more restrictive lending. But banks are also applying more conservative lending criteria, reflecting the current economic uncertainty. There is, however, no sign of a credit crunch, and banks have sufficient surplus capital and enough lending capacity to finance German SMEs.

The task now is to support SMEs in the transformation to more sustainability and climate protection, which requires massive investments in the decarbonisation of our economy. For this purpose, the differentiated range of funding from the ERP Special Fund is available and is constantly being further developed.

The ERP Special Fund [ERP: European Recovery Program] provides a differentiated and well-established system of promotional loan instruments for different start-up phases. The KfW promotional loans have been established on the market for several decades and are available with attractive conditions for financing investments, including investments in climate-neutral and digital transformation. The German government supports SMEs with its credit-based ERP funding instruments, which are open to all business sectors. These programmes are passed on to the final borrowers by the Kreditanstalt für Wiederaufbau (KfW), the Federal Promotional Bank, via the house banks (private banks, cooperative banks savings banks). Various programmes cover the investment and working capital needs of newly established and established SMEs (up to 500 million euros turnover).

In order to provide SMEs with the best possible support in the period after the Corona pandemic and in the transformation to a sustainable and digital economy, the promotional programmes for small and medium-sized enterprises were restructured at the beginning of 2022:

The ERP Start-Up Loan-StartGeld (ERP-Gründerkredit-StartGeld) is available for start-ups, freelancers and small businesses that have been active on the market for less than five years and require little start-up capital.

Small and medium-sized enterprises ERP-SME-Promotional-Loan (ERP-Förderkredit KMU) and larger SMEs KfW-Promotional-Loan-For-Large-Mid-Sized Companies (KfW-Förderkredit großer Mittelstand) now each have their own promotional programme for financing projects as well as start-ups and company takeovers. The improved conditions of the ERP and KfW promotional loan programmes allow SMEs to finance their projects at favourable and attractive conditions. Young enterprises and those in regional assisted areas continue to receive particularly strong support.

For companies affected by Russia's attack on Ukraine or the sanctions against Russia and Belarus, the KfW Special Programme UBR (Ukraine, Belarus, Russia) 2022 (KfW-Sonderprogramm UBR) 2022 was available until 31 December 2023.

Innovation and digitization support in Germany include the ERP-Digitisation-and-Innovation-Loan (ERP-Digitalisierungs- und Innovationskredit) and the ERP-Mezzanine for Innovation (ERP-Mezzanine für Innovationen).

The KfW-Loan-for-Growth1 (KfW-Kredit für Wachstum), which supports larger projects in the area of innovation and digitalisation, including investments and working capital.

The KfW-Syndicated-Loan-Sustainable-Transformation (KfW-Konsortialkredit Nachhaltige Transformation) offers larger companies flexible financing for ambitious, sustainable and transformative measures that meet the technical criteria of the EU taxonomy.

INVEST is a funding programme of the Federal Ministry for Economic Affairs and Climate protection. It was launched in 2013 and further developed in 2017 and 2023 to support private investors who want to invest in young and innovative companies. Under this programme, business angels who invest in innovative start-ups receive an acquisition grant of 25% of the investment amount. The investor must provide at least EUR 10 000 to the company. A maximum of EUR 100 000 in acquisition grants is approved per investor. In addition, natural persons can receive a lump-sum tax compensation with the exit grant amounting to 25 % of the profit made from the sale of his/her shares supported with the acquisition grant. The exit grant is limited to 25% of the investment amount of the INVEST shares, and the shares must be held for at least three years.

As 100% subsidiary of KfW Group, KfW Capital invests in German and European venture capital and venture debt funds since its establishment in October 2018, thereby strengthening the funds’ capital base. The aim of KfW Capital is to improve access to capital for innovative technology-oriented growth companies in Germany through financially strong funds. KfW Capital has doubled the annual amount of funding to EUR 400 million from 2021 onwards. Funding takes place particularly as part of the ERP-VC Fund Investments programme as well as of the ERP/Future Fund Growth Facility as a module of the ‘Zukunftsfonds’ (Future Fund).

ERP Special Fund and EIF have been cooperating very successfully in the field of equity and mezzanine financing for nearly twenty years. This makes an important contribution to ensuring that innovative start-ups in Germany have access to capital. The financing instruments include, amongst others, the ERP/EIF Venture Capital Fund of Funds with a total fund volume of EUR 3.7 billion.

The ‘Zukunftsfonds’, set up by the Federal Government in 2021, is providing EUR 10 billion until the end of 2030 for a venture capital fund for forward-looking technologies (‘Future Fund’) at the KfW to foster the German venture capital market. Factoring in the contributions from private together with public-sector partners, the Future Fund, with financial contributions from the ERP Special Fund, aims to mobilise at least EUR 30 billion in start-up funding. The overarching principle of the Future Fund is to broaden the German VC market, requiring a substantial private-sector investment contribution, also for the sake of market principles and in compliance with European competition and state aid rules. The new fund addresses various development phases of start-up financing – with a special focus on start-ups going through the capital-intensive scale-up phase – with a set of closely interlinked modules, comprising both a qualitative and quantitative expansion of existing instruments as well as the development of new modules to increase start-up funding. Within the Future Fund, the ERP/Future Fund Growth Facility, with a total of EUR 2.5 billion, as well as the GFF-EIF Growth Facility, with a volume of up to EUR 3.5 billion, increase fund volumes and facilitate larger financing rounds for the period up to 2030. In 2023 the European Tech Champions Initiative has been launched with a total fund size of up to EUR 3.75 billion to tackle the European scale-up gap; Germany is contributing EUR 1 billion alongside the EIB-Group and several contribution Member States. A fund of funds for growth capital (Growth Fund for Germany) aims in particular to mobilise capital of institutional investors for start-ups. The KfW programme Venture Tech Growth Financing (VTGF) was expanded in 2022 with a volume of up to EUR 1.3 billion to strengthen the area of venture debt in Germany. The DeepTech & Climate Fund (up to EUR 1 billion) directly invests into deep tech and climate tech start-ups together with private investors. Since 2023 it has invested in several start-ups.

With the launch of the EUR 1 billion fund-of-funds “Wachstumsfonds Deutschland”, a key module of the Future Fund to provide institutional investors with attractive investment opportunities in the Venture Capital asset class has been realized. It is funded primarily by private resources. Besides the Federal Government and KfW Capital as anchor investors, the fund has more than 20 major institutional investors including insurers, superannuation funds, foundations, asset managers and large family offices. The Wachstumsfonds Deutschland invests in German and international VC funds. This will significantly improve access to urgently needed growth capital for start-ups and innovative technology firms while strengthening Europe and Germany as an innovation location.

Further instruments and components of the Future Fund have been implemented throughout the year 2023, e.g. improving the access to venture capital for female founders and investors with the Emerging Manager Facility. Under this programme, KfW Capital is investing in smaller private venture capital (VC) funds managed by women or gender-diverse teams. These teams are often very young first-time entrants to the VC market (“emerging managers”. Overall, EUR 200 million is available from the Future Fund for the new programme until 2030.

Furthermore, HTGF Growth Facility with a volume of EUR 660 million will be launched as a co-investment fund to provide additional growth capital to particularly promising companies in the investment portfolio of the HTGF Seed Funds (HTGF I to IV), and RegioInnoGrowth will address start-ups and SMEs which are typically not addressed by venture capital funds.

The High-Tech Gründerfonds (HTGF) is an early-phase funding programme for highly innovative and technology-oriented companies whose operative business activities started less than three years ago. To be eligible for financing, projects must have shown promising research findings, be based on innovative technology, and the market situation for the product must be bright. In addition to providing capital, the fund ensures that the management of young start-ups receives the necessary help and support. An initial funding amount of up to EUR 1 million is provided, with a total of up to EUR 4 million usually being available per company. In February 2023 the fourth fund, HTGF IV, with a volume of EUR 493.8 million was closed.

The Micro-Mezzanine Fund was launched in 2013 and provides dormant equity of up to EUR 50 000 for small companies and business starters and of up to EUR 150 000 for companies within the special target group. The fund’s special target group are companies that provide training, are operated by women or people with a migrant background, or were founded by persons who were formerly unemployed. Social enterprises operating commercially are also eligible to apply for financing on the terms of the special target group, as are companies with a focus on environmentally-compatible production.


[3] KfW (2023), KfW SME Panel 2023 – small and medium-sized enterprises are also defying the next crisis, https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Mittelstandspanel/KfW-Mittelstandspanel-2023.pdf.

[2] KfW (2022), SMEs have largely digested the pandemic but the war in Ukraine and the energy crisis are clouding the business outlook, https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Mittelstandspanel/PDF-Dateien-Mittelstandspanel-(EN)/KfW_SME-Panel_2022.pdf.

[1] KfW (2021), SMEs have shown adaptability in the coronavirus crisis but cracks are appearing in the foundations of small businesses, https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Mittelstandspanel/PDF-Dateien-Mittelstandspanel-(EN)/KfW-SME-Panel-2021.pdf.


← 1. This programme is to be renamed "KfW -Syndicated-Loan-Innovation and Digitalisation" in the near future.

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