Coronavirus – Loans and government assistance at a time of crisis

Michael RainerManaging Partner, MTR Rechtsanwälte

Germany’s federal government has unveiled a vast package of measures that provide financial support to businesses and the self-employed to ensure they are able to weather the crisis.

The federal government is proposing extensive support measures for businesses, freelancers, and the self-employed to ensure they are able to cope financially during the coronavirus crisis. Germany’s lower house of parliament, the Bundestag, gave the green light to the aid package on March 25. The upper house of parliament, the Bundesrat, is expected to give its approval of the package on March 27.

We at the commercial law firm MTR Rechtsanwälte can report that the proposed measures range from direct capital injections and cheap loans, all the way to a multi-billion euro economic stabilization fund for large – but also small, systematically important – businesses.

Small businesses and sole traders are being provided with immediate financial assistance. Businesses with up to 5 employees can apply for a one-off payment of 9,000 euros for three months. In the case of businesses with up to 10 employees, it can go up to as much as 15,000 euros. This is meant to help overcome liquidity shortages and ensure businesses survive. However, the economic difficulties must be the result of the crisis surrounding the coronavirus and not predate March 2020 to be able to receive assistance.

In order to secure liquidity, businesses can also apply for loans at the German state-owned development bank, the KfW. Again, the cause of the financial difficulties must be the coronavirus crisis, and the economic difficulties must not predate January 1, 2020. According to media reports, numerous businesses have already taken advantage of this opportunity and submitted loan applications in the first few days to help them tide over a financial squeeze due to the coronavirus pandemic. Unlike in the case of the immediate assistance measures, the loans are subject to interest and must be paid back.

Larger businesses may be covered by the mutli-billion euro rescue package, with the state potentially issuing guarantees for businesses and, if necessary, bringing them into full or partial public ownership. The businesses in question will then be privatized again at the end of the crisis. While this rescue fund is intended primarily for high-revenue businesses with at least 250 employees, smaller businesses of systemic importance can also potentially qualify under the rescue package.

These support programs will be an essential lifeline for many businesses during the coronavirus crisis. However, it is important to use the funds wisely. It also bears repeating that the loans need to be repaid. Experienced lawyers can offer advice.