As of 15 April 2020, small and medium sized businesses can apply for the new Schnellkredit, or instant loan, issued by KfW, Kreditanstalt für Wiederaufbau, a state-owned development bank. The European Commission has approved the German concept of 100-percent state liability.
Financial aid provided so far on a federal and state level has proved impractical, because, given the ongoing coronavirus crisis, the vast majority of banks are unwilling to carry even the slightest residual risk of payment default unless the loans are fully backed. The federal government has now responded and set up a scheme for new, short-term bridging loans aimed specially at SMEs. It will provide full cover for any risk of default to which banks are exposed. Providing these loans quickly and unbureaucratically will hopefully help businesses remain solvent until they can obtain longer-term aid.
The KfW-Schnellkredit 2020 loan issued by the Kreditanstalt für Wiederaufbau (KfW loan scheme code 078) will augment the KfW-Corona-Hilfen coronavirus financial aid that has been made available during recent weeks. The most significant change in the new loan is that the risk of default will be 100 percent covered by Germany’s federal government. Only 80 to 90 percent of this risk is covered in KfW’s previous financial aid packages. Because of the residual risk, many banks see themselves obliged to subject applicant companies to conservative risk assessments, despite the considerable cover offered. Not only do these assessments take a lot of time, they lead to many businesses being declined credit. Most banks do not want to carry a residual risk and the great majority of businesses cannot produce what is known as a ‘continuity forecast’ to demonstrate that they will survive the crisis with a loan. Most previous KfW coronavirus loans, therefore, while considered well-intentioned, have miscarried due to banks’ allocation procedures. Full risk cover for the KfW-Schnellkredit 2020 aims to eliminate time-consuming risk assessments entirely. The idea is that loans should now be granted very quickly and in many more cases than before.
How big is a Schnellkredit loan?
This instant loan aims primarily to avert short-term liquidity shortages, which is why it amounts to three monthly turnovers from 2019. The upper limit is €500,000 for companies with up to 50 employees and €800,000 for companies with more than 50 employees. Companies with 250 employees or more cannot apply for the loan. Not all of the loan has to be taken. Once it has been approved, a business has one month to claim it.
Which businesses can apply for a Schnellkredit?
A Schnellkredit is available to any business that has been in the market since 1 January 2019 or longer. So this is the first time that newer businesses are in a position to apply for KfW’s coronavirus loans. Businesses are defined as SMEs according to how many people they employ, which must be between 11 and 249.
What financial standing do businesses have to demonstrate?
Businesses have to have generated a profit over the last three years on average (2017 to 2019) – or over a shorter period if they were not yet in the market in 2017. Furthermore, they must not have been in financial difficulty on 31 December 2019, and have to have been operating under orderly financial circumstances. What precisely this latter criterion means is yet to be defined. What is for sure is that a business must not have been in a situation on 31 December 2019 in which it ought to have applied for insolvency.
All the assessing bank has to do is obtain an up-to-date credit agency report. This means the new Schnellkredit does not require any other risk assessments. The kind of loan securities that normally have to be provided now explicitly do not. The federal government will provide full cover for the risk of default. Nor is a positive continuity forecast needed. Businesses therefore no longer have to furnish the difficult proof that a loan would actually enable them to continue out of the crisis. This has been and remains a requirement of other KfW loans, and has meant that banks have turned down a lot of loan applications.
What are the exact parameters of the Schnellkredit?
Contrary to initial reports, the loan will not have a fixed interest rate of 3%. The interest rate will be based on the development of the capital market and will be set when the KfW approves the loan, or before. The term is ten years. Businesses will not have to make any repayments for the first two years if they do not want to. One key feature is that the loan can be paid back at any time without incurring prepayment penalties. This means that it is an appropriate bridging solution until cash can be obtained by other means.
Businesses that are granted the KfW-Schnellkredit 2020 can also make use of grants issued under federal and state instant aid schemes. KfW’s Schnellkredit has to be taken out by 31 December 2020 and no later. But no other KfW loan can be applied for until that time. It is not permitted to switch from the KfW-Sonderprogramm 2020 (loan scheme codes 037/047/075/076/855) to the KfW-Schnellkredit. According to the « KfW-Informationsportal », businesses cannot combine this loan with instruments of the Wirtschaftsstabilisierungsfonds (state financial stabilisation fund) or with schemes run by the Bürgschaftsbanken (guarantee banks) that have been extended on account of the coronavirus crisis.
What can the Schnellkredit be used for?
The instant loan can be used for ongoing business or investments. But it cannot be used for debt restructuring or paying off other loans. Nor may profits or dividends be distributed during the term of the loan. ‘Customary’ dividends and withdrawals by the owners of a business are, however, permitted, as KfW states on its « Informationsportal ».
When will the Schnellkredit be available?
Applications for the Schnellkredit may be submitted from 15 April 2020 onwards. The European Commission stated on 11 April that Germany’s instant loan scheme with full state liability complies with EU aid regulations, so things should move quickly. But according to reports in « Handelsblatt », KfW will not ‘technically’ be in a position to process and approve applications right away. This, it says, will only be possible by 28 April at the latest.
How do businesses apply for the Schnellkredit?
The Schnellkredit is applied for through a business’ usual bank. This bank will obtain credit agency references, assess turnover levels and staff numbers where necessary, and initiate assessments as to whether the necessary profit was generated in 2019 or as an average over the past three years. Only KfW will be obliged to assess submitted documents and decide on loans.