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Jana Pfeiffer December 22, 2020 4 Minutes
Categories: Finance - Categories | Financing Guide
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Public funding - not sexy but helpful. Especially in the pre-seed and seed phase of a company, funding programs can help achieve proof-of-concept and proof-of-market without having to involve venture capital partners or business angels. But it's not just startups that benefit from public funding - existing companies can also take advantage of funding at various stages of the business. 

The state financing and subsidy landscape in Germany is divided into two areas: publicly subsidised loans and non-repayable state grants. Subsidies are available to companies at almost every stage of their development. 

There are around 3,000 different subsidy programmes in Germany. They serve as subsidies to achieve economic or political goals and are regulated by the state. 

Identifying the right programs and combining them into a viable funding strategy is like a jungle. This article is intended to give the reader an insight into the federal and state funding system and a basic orientation on the funding landscape. 

1. Publicly subsidised loans

Regardless of whether a company is in the start-up, growth or consolidation phase - as a rule it always has a financing requirement for investment and/or operating resources. 

If the financial requirements can neither be financed by equity capital from the current cash flow nor by alternative financing channels (e.g. leasing, factoring, micro-financing), the only option is usually to go to the company's bank. 

Depending on the amount and the planned term, companies can choose from the following options: 

  • Short-term financing requirements
    • Overdraft
    • Authorised overdraft
  • Medium to long-term funding requirements
    • Aval
    • House bank loan

The Approval of a loan application by the house bank usually depends on the creditworthiness of the company, i.e. on the risk assessment by the house bank. Approval is often linked to sufficient collateral. The loan conditions reflect the quality of the collateral. 

In order to reduce the risk of the principal bank, additional public funding programmes, e.g. from the KfW development bank (Kreditanstalt für Wiederaufbau) and/or the respective state development institute, can be applied for. In this case, the development banks provide the bank with guarantees within certain limits (e.g. deficiency guarantee or indemnification against liability). The aim of these development loans is to relieve the banks of lending risks and thus increase their willingness to lend.

However, access to these promotional loans is only possible via the house bank (so-called house bank principle). Accordingly, there is no direct business relationship between the development bank and the borrower. This presupposes the willingness of the house bank to apply for a development loan together with the company. 

2. Grants

Grants are non-repayable subsidies. As a rule, these are pro-rata grants, i.e. the company must provide and prove a corresponding own contribution. This own contribution can be provided or proven in various ways:

  • Equity or participation capital
  • Debt capital (including subsidised loans and shareholder loans)
  • Evidence of contract pre-financing
  • Current liquidity (sales revenue)

In most cases, grants are paid out in arrears. This means that the company must make advance payments and only receives the grant amount retroactively upon presentation of proof of payment or use of funds. Individual subsidy programmes deviate from this, especially when it comes to subsidies for working capital requirements. 

As with state-subsidised loans, there is no legal entitlement to grants and the project for which funding is to be requested must not yet have been started. Double funding must be avoided at all costs, i.e. a project cannot be funded by two or more funding programmes. This applies in particular to the own contribution (exception: financing through a state-subsidized loan).

Who promotes?

Small and medium-sized enterprises (SMEs) or start-ups can apply for most of the funding from the state, federal government and/or EU; in individual cases, municipalities also offer their own funding programmes.

Within the federal and state governments, the individual ministries (federal and state) are responsible for the tendering and disbursement of funding within the scope of their departmental responsibilities. 

In addition to the specialist ministries, the KFW Förderbank is another funding partner of the German economy at federal level.

Where can you get information?

At federal level, the central funding portal ( the optimal overview.

Via the federal funding database (, companies can find out about funding programmes offered by the federal states and the European Union.

In addition, the Federal Gazette offers the possibility of obtaining up-to-date information on the latest funding projects. 

Who can apply for funding programmes?

Any already established small and medium-sized enterprise (SME) with its registered office in Germany can apply for funding from the Federal Government or the various Federal Ministries; the same applies at Land level, i.e. a company with its registered office in Bavaria can apply for funding from the Free State of Bavaria. 

One exception to this is the EXIST start-up grant. The EXIST start-up grant supports students, graduates and scientists from universities and non-university research institutions who want to realise their start-up idea and implement it in a business plan. In contrast to the other funding programmes, at the time of application the company may not yet have been established. not have been founded. 

3. participations

In addition to publicly funded loans and grants, there is a third form of support from the state: (dormant) SME participation or institutional venture capital. The requirements and participation amounts vary from federal state to federal state. Initial information and specific contacts can be obtained from the respective state development institute.

Institutional venture capital (both as lead investor and as co-investor possible) has the following advantages:

  • No exit pressure due to fund maturities
  • No conflicts of interest arising from fund mechanisms
  • No fundraising with liquidity shortages

4. (Micro-)Mezzanine capital

In the legal and economic sense, mezzanine capital represents a hybrid form of equity and debt capital. With a micromezzanine investment, economic equity is injected into the company without the investor having any voting or influence rights. The injected capital improves the rating and creates new scope for lending.

Small and young companies have only limited access to smaller mezzanine financing. With the micromezzanine fund, the capital strength of small and micro enterprises is strengthened.

5. guarantee

Investment, working capital and guarantee loans that could not otherwise be granted because of a lack of bank collateral can be guaranteed in some Länder by means of state guarantees. In this way, they cover part of the credit risk of the house bank and thus ensure that companies with insufficient collateral can also take advantage of promotional loans.

About the Author:

Wolfgang Dykiert has been advising medium-sized companies for almost 30 years and start-ups for over 15 years. He advises founders from the pre-start-up phase through the financing phase to market entry and the growth phase. He supports startups in taking a holistic view of their business concept, translating it into a viable financial plan and developing a financing concept. In Germany, there are almost 3,000 public funding programs available to start-ups and SMEs. Wolfgang Dykiert searches for the optimal funding programs for his clients and supports them in the application process. In addition, he assists them in applying for public financial aid. Learn more here more.

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