The global economy is suffering from the Corona crisis. Therefore, individual countries are taking measures to cushion the economic impact. We present measures introduced in Germany.
Due to the economic and social restrictions resulting from the corona crisis, sales declined in almost all industry sectors – a development that experts were unable to forecast. Additionally, there were uncertainties, particularly at the beginning of the crisis, experts around the world could hardly estimate how long the pandemic would affect society and the economy. Therefore, there was a need for measures to support the economy and to ease the situation on the stock markets. The German government and other institutions delivered a broad package of measures in a relatively short time. The aim of each measure was to maintain the liquidity of the economic system despite the decline in sales. For this purpose, as an example, the responsible institutions revised credit programs, put up protective shields or modified insolvency application regulations.
Government agencies established mechanisms during the Corona crisis to provide the economy with new financial resources. These measures thus compensated for declines in sales and helped economic operators to remain capable to take action on the market. Here are a few such measures and its probable impacts –
Economic stabilization fund for large companies – The Economic Stabilisation Fund (Wirtschaftsstabilisierungsfonds, WSF) for large companies is intended for companies with an annual average of more than 249 employees, a turnover of more than EUR 50 million and total assets of more than EUR 43 million. The WSF provides loans of up to one billion euros for such companies. The eligible areas are investments, warehouses, operating resources and acquisitions of companies. This way, the WSF aims to secure liquidity for companies that were financially healthy and competitive before the Corona crisis
KfW Express Loan for SMEs – The state-owned development bank Kreditanstalt für Wiederaufbau (KfW) supports small and medium-sized enterprises with the KfW Express Loan 2020.
For companies with more than ten and up to a maximum of 50 employees, the loan provides a credit of up to EUR 500,000 with a maximum term of ten years. Companies with more than 50 employees receive a loan of up to EUR 800,000 with a maximum term of six years. KfW covers 100 percent of the liability risk of the applicant’s bank. This guarantees an easy access, as the risk of the house banks is eliminated.
Emergency aid for micro-enterprises and self-employed persons – Micro-enterprises and the self-employed persons receive one-off emergency aid in the Corona crisis. This emergency aid is aimed at entrepreneurs with up to ten employees or those who are self-employed.
For Employees –
Creating short-term conditions under which companies reduce their own expenditures to secure liquidity. Personnel is one of the main factors on the expenditure side of companies. During the crisis, conditions were created to reduce personnel expenses in the short term without having to lay off employees.
Short-time work allowance- Employers can apply for short-time work for their employees in the event of a corona-related loss of working hours. Only ten percent of the employees are affected by a loss of working hours.If the short-time work allowance is approved, the employer’s social security contributions are reimbursed for a maximum of 12 months.
Social security institutions defer contributions – Employers have to pay social security contributions for their employees. These are paid quarterly, thus withdrawing liquidity.
During the crisis, social security institutions offered to defer these contributions. For many companies, which barely made any profit during the crisis, this prevented the loss of crucial liquidity. No interest is charged for the deferred contributions. However, entrepreneurs should have made use of other liquidity preserving measures in advance, such as emergency aid, loans or short-time work allowance.
Tenant protection and suspended obligation to file for insolvency – In addition, the legislator has protected companies from pending insolvency by amending laws and temporarily suspending regulations
German parliament decides on changes to the regulations for rental and loan agreements
Companies that are unable to pay their rent or loan instalments may suspend them until 30 June as a result of the Corona crisis. Overdue payments in connection with the Corona crisis may not result in termination. However, the general payment obligation remains in force. Rent arrears must be settled by June 2022.This measure also secures liquidity for companies in times of enormous declines in sales.
Suspension of the obligation to file for insolvency
Beyond the crisis, the following applies: If a company is over-indebted or insolvent, the management must file for insolvency. Failure to comply with the three-week insolvency obligation may result in legal consequences. This period is now suspended. This way, companies that are entitled to state aid, are prevented by the federal government from having to file for insolvency. The obligation to file for insolvency is temporarily suspended until 30 September 2020. Moreover, the suspension might be extended until 31 March 2021.
We hope likethe rest of the world that we come out of this crisis a little less bruised and great learnings