Freelancers & Self-Employed: Can the KfW Quick Corona Loan help you? | Kontist business banking

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Freelancers & Self-Employed: Can the KfW Quick Corona Loan help you?

Kate Bailey

Freelance Editor

Jan 27, 2021

With the announced extensions of ‘’hard lockdown’’, many freelancers and self-employed people are facing tough questions about their future. There are varying issues from liquidity and in some cases a need for expansion and investment to meet the moment of crisis. Unique funding programs have been announced and today we are asking can the KfW Quick Corona Loan help you.

Of course, we have already talked about the need for patience and endurance as we enter the new year, but it does little to solve financial problems for freelancers and the self-employed. The harsh reality before us is that many companies and the self-employed are getting into major difficulties because of the Corona crisis.

Shops have to close, orders are missing, material cannot be delivered. If you are also looking for help for your company, you may have heard of the KfW loan. A special program has now been decided together with the federal government. The goal: to make the loan application less bureaucratic and easier. No time like the present to change German ways! Of course, you are able to see find more credit options and current information at www.kfw.de.

Today we will focus on providing an overview of the loans that are probably most relevant to you, show what conditions such a loan is tied to and how you can actually get it.  Let’s start by looking at the funding available as of January 2021:

KfW Instant Loan

Provided that a small to medium-sized enterprise (also available to freelancers and self-employed who meet criteria) showed profits in 2019 or on average over the last three years, an instant loan with the following basic points shall be granted:

The instant loan is available to all companies that have been active on the market since at least 1 January 2019.

  • The credit volume per company is up to 3 monthly turnovers, with a maximum of EUR 800,000 for companies with more than 50 employees, with a maximum of EUR 500,000 for companies with staffs from 10 up to 50 people and a maximum of EUR 300,000 for companies with staffs of up to 10 people.
  • The company is not allowed to have experienced financial difficulties before 31 December 2019 and is required to demonstrate that its financial condition was in order at that point in time.
  • A current interest rate of 3 per cent with a term of ten years.
  • The bank is released from 100 per cent liability by KfW, hedged by a guarantee from the German Federal Government.
  • The credit approval process does not involve additional credit risk assessment by the bank or KfW. This enables loans to be granted quickly.

So, to confirm:

  • KfW does not require the house bank to carry out a risk assessment.
  • KfW assumes 100% of the credit default risk from your bank.
  • As a borrower, you are 100% liable for the repayment.
  • You only need a few documents to prove your numbers.

The KfW Schnellkredit supports the self-employed and companies regardless of the number of employees, that have been on the market at least since January 2019 and have made a profit in the total of the years 2017-2019 or in 2019 (if your company has only been on the market for a shorter period of time, this period is used).

They also sponsor companies in which private equity investors are involved. Unless significantly involved investors receive distributions or withdraw capital during the credit period.

The funding product is out of the question:

  • for companies that were in difficulties as of December 31, 2019, i.e. before the start of the corona crisis.
  • if you distribute profit or dividends during the term of the loan.
  • for companies that produce agricultural products or are engaged in fishing.

What You May Need for Collateral

You do not have to provide collateral as is usual with loans. Your bank will only obtain information from a generally recognized credit agency.

Terms and interest rates

Up to 10 years term - during this time you will pay back your loan.

If you wish, up to 2 repayment-free years at the beginning - that lowers your burden.

Repayment

During the repayment-free period, you only pay interest - then the same quarterly instalments plus interest on the loan amount still to be repaid. An early repayment of the loan amount is possible - without a prepayment penalty. The repayment is made through your bank.

Combination with other funding

Important: In addition to the KfW Schnellkredit 2020, you can also use the grants from the federal and state emergency aid programs, provided that the total amount of funding remains below EUR 800,000 (total nominal amount) per company. You can take out the KfW express loan no later than 06/30/2021. You cannot apply for another KfW loan up to this point. A change from the KfW special program 2020 (program numbers 037/047/075/076/855) to the KfW express loan (078) is excluded. Cumulation with offers from the Economic Stabilization Fund is also excluded

We also want to make mention of some of the other funding available, though it is unlikely that freelancers and the self-employed can take advantage of these options.

KfW Entrepreneur Loan

When you apply for a loan for investments and working capital, KfW assumes part of your bank's risk:

  • 80% of the risk is assumed for large companies
  • Up to 90% of the risk is assumed for small and medium-sized enterprises
  • This increases your chances of being granted a loan commitment.

You can apply for up to EUR 100 million per company group. The loan amount is limited to a maximum of:

  • 25% of the annual turnover in 2019 or
  • double the wage costs in 2019 or
  • the current financing requirements for the next 18 months for small and medium-sized enterprises or 12 months for large companies, or
  • 50% of your company's total debt in the case of loans exceeding EUR 25 million.

ERP Start-Up Loan – Universal

If your company has been active on the market for at least three years or has two annual financial statements, you can apply for a loan for investments and working capital. KfW assumes part of your bank's risk. This increases your chances of getting a loan commitment.

  • 80% of the risk is assumed for large companies
  • Up to 90% of the risk is assumed for small- and medium-sized enterprises

You can apply for up to EUR 100 million per company group. The loan amount is limited to a maximum of:

  • 25% of the annual turnover in 2019 or
  • double the wage costs in 2019 or
  • the current financing requirements for the next 18 months for small and medium-sized enterprises or 12 months for large companies, or
  • 50% of your company's total debt in the case of loans exceeding EUR 25 million.

Direct participation for syndicate financing

KfW participates in syndicate financing for investments and working capital for medium-sized enterprises and large companies. In this case, KfW assumes up to 80% of the risk, but no more than 50% of the total debt. This increases your chances of getting individually structured and tailored syndicate financing.

The KfW risk share amounts to at least EUR 25 million and is limited to:

  • 25% of the annual turnover in 2019 or
  • double the wage costs in 2019 or
  • the current financing requirements for the next 12 months.

How do I apply for a KfW loan?

Prepare loan application: Enter your first data in the KfW online form. Attention! Filling out the form is not binding and does not count as an application. Then, you need to prepare documents: 

BWA (business administration statement):

If you have not yet received the BWA from 2019, submit the BWA from 2018 and the latest BWA from 2019. 

Self-declaration SME:

With this, you assure that your company complies with the definition of “micro, small and medium-sized enterprises” (SME) and is not linked to other companies. KfW has drawn up a simplified self-declaration. 

Recommended:

A document that shows how the crisis is affecting your company and what investments you need to make to overcome the crisis. A financial plan for the next 24 - 36 months and/or a small business plan are suitable for this.

Find your house bank as a partner: It doesn't have to be your own bank, but it has to be a KfW partner.

More important than ever: Submit your documents in full if possible so that your request can be processed quickly - and in the best case scenario you can get your money soon.

You can find detailed information, partner banks and current forms to download on the KfW website: www.kfw.de.

Common FAQ’s

Do I have to repay the KfW loan or is it a grant?

You have to pay back the entire loan plus interest. 

When do I have to repay the loan?

If you opt for a term of 5 years, there is no repayment in the first year, i.e. you only pay the interest. The repayment of the loan then begins in the second year.

Can you apply for a loan directly to KfW if your house bank does not cooperate?

No, it is not possible to apply directly to KfW. If your house bank doesn't play along, you can try another partner bank.

For loans, KfW refers to the house bank and "usual bank securities". A company (such as mine) that already has no more orders will then not meet these conditions in advance. What can I do if I really am suffering from the loss of booked work due to Corona?

Do not worry! Thanks to the current special regulations, you only have to prove that your company was not in trouble by December 31, 2019. Your current order situation does not matter at first.

My company is less than 3 years old. Can I get a KfW loan?

Yes, but your house bank then has to bear the full risk. The federal government is constantly working on new measures, so it remains to be seen what further support will be made possible.  Most recent extensions came into play as of 01.01.2020, with program extensions announced through to June 2021.

The good thing is that these loans can be used not just to secure liquidity but to also assist in investments to sustain or grow operations during this time, which could be useful if you have had to adapt your business to meet the moment. We hope we have been able to provide useful information as you prepare for the 2021 business year.


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