Germany offers fertile ground for the entrepreneur, with billions of euros being injected into schemes that promote research, innovation and investment. There are numerous grants, loans and financial incentives available for anyone wishing to start a business. Germans and foreign entrepreneurs alike are welcome to apply for financial support.
Public funding in Germany can broadly be divided into four main groups:
- Direct grants
- Public loans
- Public guarantees
- Equity capital
Direct grants for businesses in Germany
Direct grants are non-repayable cash payments granted to new businesses in Germany to offset initial set-up costs, promote research and development, or help build a company’s workforce.
GRW cash grants
The GRW (Gemeinschaftsaufgabe “Verbesserung der regionalen Wirtschaftsstruktur” – Joint Task for the Improvement of Regional Economic Structures) is a major investment programme committed to creating jobs and promoting regional economic development. It offers grants to businesses in the manufacturing and service industries to cover a proportion (up to a maximum of 40%) of costs during the establishment phase. This includes:
- Capital expenditures (e.g. new buildings, equipment or machinery) in the first three years
- Personnel costs of newly-created jobs, in the first two years.
How much is the GRW grant?
The amount of funding available is dependent upon the company’s size and location within Germany. Regions in Germany are allocated a maximum funding entitlement, based on their economic outputs. The whole of eastern Germany, excluding Berlin, is classified as a “C” region, while the vast majority of prosperous southern federal states such as Bavaria and Baden-Württemberg have no funding entitlement.
Maximum proportion of investment costs reimbursed
|Region||Small enterprises**||Medium enterprises**||Large enterprises**|
|D region*||20%||10%||Max 200.000 euros|
* See a GRW regional aid map outlining border, C and D regions, valid until 2020. ** Adhering to an EU-wide classification system of company size according to employee numbers, annual turnover and balance sheet totals.
How to apply for a GRW grant
Applications for GRW cash grants can be made with the state development bank in your federal state (Landesförderinstitut or Förderbank), who administer the cash grants as well as approving applications. You must submit your application before your project begins. The application turn-around time is usually very quick. You will need to submit the following documents:
- Application form
- Financing statement
- Business plan
- SME status verification (if applicable)
Research and development incentives
The German federal government (Bundesregierung) has committed to spending around 3% of GDP on funding research and development, meaning that there are numerous programmes providing financial support for these kinds of projects. Incentives are provided on three different levels:
- EU-wide incentives (Horizon 2020 programme)
- Federal government grants
- Federal state grants
The amount of funding available is dependent on the size of the business, how many companies or institutes are involved, and the kind of research being undertaken.
Germany Trade & Invest, the economic development agency of the German government, can assist you in identifying suitable funding programmes and the application process.
Employment support from the German BA
There are also a number of labour-related incentives on offer from the Federal Employment Agency (Bundesagentur für Arbeit – BA) to help new companies reduce their operational costs. There are four main types of incentives.
Local job centres, run by the Federal Employment Agency, offer free services to businesses such as vacancy advertising, pre-selection of candidates and provision of facilities to conduct job interviews.
The BA will also subsidize up to 100% of the cost of training new employees if particular training measures need to be undertaken before they can start work.
There are cash payments available for businesses who hire unemployed people on long-term contracts. You can receive a grant of up to 50% of the employee’s salary for up to 12 months. If the employee has disabilities or is above a certain age, the subsidy rises to 70% of their wage for up to eight years. You must apply for the wage subsidy before any employment contracts are signed.
Companies are also given support to help cover training costs once an employee has been hired. You can apply for a subsidy that covers up to 50% of all on-the-job training costs.
Public loans for businesses in Germany
Entrepreneurs in Germany can also access publicly-subsidised programmes, provided by development banks, which offer loans at low-interest rates. There are two levels of public loans:
National public loans
The KfW (Kreditanstalt für Wiederaufbau – “Reconstruction Credit Institute”), the federal government’s development bank, has a number of financing options open to entrepreneurs, both German and foreign. The Entrepreneur Loan (Unternehmerkredit) finances up to 100% of eligible costs, up to a maximum of 25 million euros.
Federal state public loans
Alongside the loans offered by the KfW, each German federal state has its own development bank, which provides loans of up to 10 million euros to small and medium-sized enterprises (SMEs).
How to apply for a public loan
Your bank can contact the development bank for a loan on your behalf. You will need a business plan and sufficient loan securities. Having a German bank account also helps to smooth out the application process.
Public guarantees for German businesses
Public guarantees are a scheme adopted by the German government to encourage commercial banks to offer loans to companies. Under this scheme, public guarantee banks act as guarantors for those who have insufficient collateral for loans, i.e. they promise to repay the lender if the borrower defaults on payments.
Public guarantees can cover up to 80% of the loan amount, usually up to 1,25 million euros, over a period of fifteen years. Throughout the loan period, the borrower pays an annual fee, proportional to the outstanding amount borrowed.
How to apply for a guarantee
A guarantee application must be submitted to the guarantee bank or state development bank via your commercial bank. For state guarantees, the application is dependent on a committee’s decision.
Equity capital for new businesses in Germany
Various public sources, on both a national and a regional level, provide equity capital for new businesses in Germany. The amount up for grabs is large: in 2016, more than 934 million euros of venture capital was invested in new companies based in Germany. The table below sets out some of the main sources, which provide capital for companies in different phases of their life cycle.
Equity capital providers in Germany
|Company||Business sector||Maximum investment per start-up|
|High-Tech Gründerfonds (HTGF)||Technology||2 million euros|
|Coparion||Technology||10 million euros|
|KFW Capital||Technology||25 million euros|
|Venture capital companies (various)||ICT, life sciences, new materials||5 million euros|
|Mittelständische Beteiligungsgesellschaften (Public-Private Equity Companies for SMEs) (various)||All||3 million euros|
How to apply for equity capital
The process for applying for equity capital varies according to the provider, but in general, you will be expected to submit a business plan and meet with the capital provider before a decision can be reached.
Start-up grants for unemployed workers in Germany
If you have lost your job and are receiving unemployment benefit, you may be entitled to a start-up grant to encourage you to take up self-employment. Job centres also offer seminars and courses to help prepare you for running your own business or becoming a freelancer.
To be eligible for the start-up grant, you need to be entitled to unemployment benefit for at least 150 days beyond the point at which you take up self-employment. Additionally, you must prove that you possess the necessary knowledge and abilities to run your own business, for instance by your qualifications or having attended a course.
You must also demonstrate that the start-up is a viable venture. Usually, this requires you to obtain a statement from an expert authority, such as your local Chamber of Industry and Commerce (IHK), Chamber of Crafts (HWK), or a financial institution.
The start-up grant is not available to those above the statutory retirement age.
How much is the German start-up grant?
There are two phases to the grant. For the first six months, you are given the unemployment benefit you were previously entitled to, plus 300 euros per month. After this, you may be granted an additional 300 euros per month for a maximum of nine months, provided that your business has started to operate full-time.
How to apply for the start-up grant
To apply for the grant, you will need to submit an application to your local job centre. The staff can advise you as to the exact process, but usually, you will need to submit the following documents:
- Business plan
- Professional opinion as to the viability of the project
- Proof of knowledge to pursue self-employment
- Certificate documenting registration of the business at the trade office (Gewerbeamt)