Dr. Stefan Papirow: Providing guarantees and equity – On the culture of business and SME promotion in Germany

Bürgschaftsbanken nach Bundesländern.

Bürgschaftsbanken nach Bundesländern.

Apart from big companies, there are predominantly small and medium-sized companies (SME) with no access to the capital market in Germany. For them funding is a rather difficult matter. This was also true 60 years ago. Many companies lacked the necessary guarantees, which is why it was difficult for them to obtain loans. For this purpose, the “credit guarantee associations” were founded in 1950 for the individual sectors such as trades, commerce and industry. Fol­­lowing mergers, they resulted in cross-sec­­tor guarantee banks in the states. They support small and medium-sized companies with guarantees for loans by the principal bank if there is no security.
During the crisis from 2008 to 2010, guar­antees were especially in demand. These enabled small and medium-sized companies to obtain secure funds. In 2012, demand had already reached the same level as before the crisis: more than 7,000 small and medium-sized companies were funded with guarantees amounting to almost 1.1 bil­­lion euros. In this way, companies could take out loans and equity for 1.6 billion euros and thus make in­­vestments to the amount of ap­­prox­imately five billion euros.

Especially the small and medium-sized companies are highly leveraged. Often they don’t have enough equity. Even if some small and medium-sized companies made headlines with the issue of their own bonds in the past years, the majority of German companies cannot raise funds through the capital market because they are too small. For this rea­­son, at the end of the 1960s, the Ger­­­­man government wanted to provide com­pa­nies with equity via private eq­­uity in­­vest­ment companies with state aid. This is how the Mittelstän­­dische Be­­­­teiligungs­gesell­­schaf­ten (MBGen) emerged, which offer SMEs equity. As business promotion institutes, they co­­­operate closely with the guarantee banks. Approxi­mately 20 years after the found­­­ing of the guar­antee banks, the promo­tion of SMEs was thus supplement­ed by the MBGen.
In the forty years of their existence, the MBGen have developed into financiers. On the one hand their equity capi­tal only makes up five per cent of the volume, but on the other hand they ac­­count for half of all investments granted in Ger­ma­ny. In 2012, they approved 591 in­­vest­­ments amount­­ing to 182 million eu­­ros. Today, MBGen are involved in about 3,300 com­­panies across all sectors with investments of more than 1.2 billion euros.


Bürgschafts- und Garantievolumen 2012 in Mio. EUR. Geschäftsvolumen 1.090 Mio EUR. Anzahl 7.061.

Bürgschafts- und Garantievolumen 2012 in Mio. EUR.
Geschäftsvolumen 1.090 Mio EUR. Anzahl 7.061.

Guarantee banks and MBGen expect a sim­ilar high level of demand for 2013 and the coming years. However, if the econ­­omy does not strongly pick up, we ex­­pect in­­creased enquiries, especially with the guarantee banks. The regulation of the fi­­nancial market also threatens to complicate the funding of SMEs, be­­cause, in view of higher capital re­quire­­ments for banks and companies, guarantees will play an even more important role in future lendings. The programmes of the guarantee banks and the MBGen mitigate negative consequences of Basel III for SMEs.

The shareholders of guarantee banks and MBGen are chambers of industry and com­­merce, chambers of handicrafts, eco­­­nomic associations, banks, savings banks and insurance companies. For these pro­­­­­motional institutions created “from busi­­nesses for businesses” to be able to sup­port SMEs in the future, continued de­­vel­­opment is necessary – also with a view to regulations. In light of federal elec­­tions coming up in September 2013, the guarantee banks and MBGen have sub­­mitted their demands to the politicians. How­­­ever, these socio-economic instruments have to develop further, irre­spec­t­­ive of any elections. Guarantee banks and MBGen should be taken into consideration for all SME-related measures by the federal and state governments. Neither this nor any future government should allow limitations to the current promotion possibilities, for instance in the field of financing working capital. Rath­­er, the instrument of guarantee banks and MBGen should be strengthened and intensified.

The guarantee instrument works with counter-guarantees from the federal gov­­ern­ment and the states, which is why au­­thorities constantly scrutinise guar­antee banks. Guarantee banks do not fear this scruti­ny be­­cause they are a veri­­fiably well-func­tioning instrument that has a clean slate as far as regulatory as­­pects are concerned, has the big­gest leverage of all aids and goes easy on pub­lic budg­ets. To be able to im­­prove the promotional possibilities even further, an ex­­tension of the programme to micro fi­­nancings and financ­­ings for non-profit organisations in the social field, such as day care centres and nurs­ing institutions, would promote companies whose import­­ance will be in­­creas­­ing in the future in times of demograph­ic change.


Genehmigte Beteiligungen der MBGen 2012 in TEUR. Gesamtvolumen 182.310 TEUR. Anzahl 591.

Genehmigte Beteiligungen der MBGen 2012 in TEUR.
Gesamtvolumen 182.310 TEUR. Anzahl 591.

In addition, in the event of an economic slump, guarantee banks have to be able to expand their product range rapidly and unbureaucratically. As with the last eco­­nomic crisis, when they provided guar­­antees worth up to two million euros. If state-specific limitations and guaran­tee criteria that have nothing to do with the business of lending were to be waived, this would also debureaucratise and ex­­pedite the guarantee process. SMEs would directly benefit from this.

They would also benefit from a higher lev­­el of guarantees. The current ceiling stands at 1.25 million euros, which is ad­­justed only every five years. The counter-guar­antees and counter-guarantee conditions have to be renegotiated regularly with the fed­­eral government and the states at these intervals. Although the ceiling was raised by 25 per cent at the beginning of the year 2013, this was merely an adjustment to rising pric­­es. There­­fore it should be possible to continuously ad­­just the ceiling so that guarantee banks in their function as business pro­­motion institutions can better react to current economic developments and support SMEs in accordance with their needs.

One focus of the work of guarantee banks and MBGen lies in the promotion of busi­­­ness start-ups and business suc­­ces­sions. However, here in particular, there is a lack of capital and securities. For these ventures, guarantees are often the only way to provide securities and thus obtain funds. Accordingly, in the year 2012, start-ups and takeovers ac­­counted for 40 per cent of our promotions. These groups strength­­en Germany’s in­­novative capability and continue to ad­­vance struc­tural change. Therefore, we also demand an increase of counter-guarantees and for business founders and suc­­ces­sors and for innovation projects and the cre­­ative in­­dustry by 10 percentage points and an improvement of their funding op­­tions.

New promotion programmes are less mean­­ingful than the expansion of existing offers. Duplicate promotions should be avoided. This is why the federal gov­­ernment and the states have to review the promotion instruments and offers with a view to parallel offers and compet­ing product developments.

As business promotion institutes, guarantee banks and MGBen are ready to en­­sure the financing of SMEs in the fu­­ture as well. We are confident that the next fed­­eral government will also have the pro­motion of business and SMEs in mind.


Dr_Papirow_262The author earned a doctorate in busi­ness administration. After a management position at the Hamburger Spar­­kasse, he became managing director of the Bürgschaftsgemeinschaft Ham­burg GmbH and BTG Beteiligungsgesell­schaft Hamburg mbH from 1994 to 2013. Dr. Papirow has represented the Ver­band Deutscher Bürgschaftsbanken e.V. (VDB) as deputy chairman since 2007 and as chairman since 2011.