Finances- Financing

The “funding landscape” in Germany is not particularly straightforward, but it is worth doing some research. Take a look at the funding database of the Federal Ministry for Economic Affairs and Energy Once you have reviewed the supra-regional funding offers of the federal government, also take a look at the possibilities for regional funding in your federal state.

The purpose of financial planning is for you to establish your capital requirements. Here, you have two questions to consider: how does financing work and where does the money come from? The possible answers to these can vary considerably: Equity comes from your own pocket, initial sales or loan capital in the form of bank or promotional loans. In certain cases, you can even opt for venture capital, state-run grant programmes or even a crowd-funding campaign. Generally speaking, it makes sense to have a combination of different financing types.

Financing with your own resources and initial takings

When looking to secure your initial funds, you should start by checking whether you might have access to finance that does not rely on third-party capital.

Equity – financing with your own resources

If you have savings that you use while starting up your business, these take on an essential role as equity in your company. On the one hand, you are in a flexible position with sufficient equity, making you ideally equipped for dealing with liquidity shortfalls and allowing you, for example, to offset unforeseen fluctuations, pre-finance orders and respond to changing market requirements. On the other hand, equity puts you in a better negotiating position with banks and savings banks (Sparkassen) whilst also improving your rating, which can result in lower interest rates. Generally speaking, you should be able to cover 15 to 20 per cent of your capital requirements with equity.

Bootstrapping – financing with initial takings

Bootstrapping is the ideal type of financing for you if you can accommodate your company set-up and strategy within a very tight budget and with minimal resources.

By avoiding expenditures whilst at the same time increasing revenues, bootstrapping only manages to keep your company afloat with its cash flow. Bootstrapping is primarily advisable for setting up a company that only requires a little starting capital – also known as a low-budget model.

Venture capital

Venture capital is an appropriate financing option for technology-oriented or innovative, fast-growing start-ups. In such cases, the risk of default is often either difficult to estimate or else clearly going to be high, with a particularly long time required to get to market. As a result, credit financing from financial institutions often fails to meet the risk management requirements. Venture capital increases the equity of a company through external financing.

The following investment options are commonly found in practice:

Direct (open) investment

This is where the external equity provider participates in the company’s share capital (GmbH) or capital stock (AG) and thus becomes a co-shareholder. The investor generally sees a return at the end of the investment phase (after 3 to 7 years) upon selling its share (exit). As a result of having shares in the company, investors are also granted co-determination rights.

Silent partnerships and subordinated loans (mezzanine capital)

Mezzanine financing is characterised by its subordinated status and high interest rates. Unlike for equity investment, companies do not need to surrender any information or control rights. In basically any legal form, the investor can participate as a silent partner as a result of their capital contribution. On account of their participation in profits, they become a creditor of the company but have no visible involvement in it as far as outsiders are concerned. In the case of a subordinated loan, the lender grants an interest-bearing loan to the company, for which neither collateral nor a declaration of resignation are required. This makes the loan of an equity nature without losing any shares.

Convertible loans (mezzanine investment form)

These are subordinated loans than can be converted into equity at a later stage. In most cases, the interest is deferred and included in the loan amount, which is converted to equity at a later stage.

Where start-ups are concerned, venture capital can be split into different phases. The pre-seed phase frequently makes use of mezzanine investment forms or convertible loans from family, friends or business angels.

In the seed and start-up phase (also known as ‘series A’) direct investments from business angels (private investors), incubators/accelerators and start-up-phase venture capital companies (VCs) are becoming increasingly popular.

In the growth stage and beyond (also known as the ‘expansion stage’, ‘later stage’ or ‘series B/C/D’), you can primarily expect to find direct investments from VCs or private equity providers.

How to set up venture capital

  1. Establish contact and conduct preliminary audit
  2. Open discussions and submit a letter of intent or term sheet
  3. Carefully check, analyse and evaluate the company (due diligence)
  4. Conclude an agreement and set up the financing

Minimum requirements for venture capital investment

  •   Innovative business idea with positive growth prospects (scalability)
  •   Impressive management / team of founders
  •   Professional business plan in the form of a pitch deck
  •   Realistic estimation of the market and competitive environment, as well as the   growth in sales/earnings
  •   Consistent financial plan complete with break-even calculation
  •   Legal form of a corporation – GmbH or UG (limited liability)

Alternative: Funding-based investment companies

An alternative to private investors can be found in the form of publicly funded investments – such as those awarded by High-Tech Gründerfonds (HTGF) and the KfW-Coparion-Fonds – or investments from the Mittelständische Beteiligungsgesellschaften (MBG), in which chambers, associations and banks, for example, are all shareholders.

HTGF supports technology companies in the start-up phase (up to a year after setting up) with a convertible loan. As for KfW this award opens investments. In such cases, a private investor who is involved on equal terms with at least half of the total is always required.

The MBG grants silent partnerships, i.e. with no voting rights , influence on the management or participation in the appreciation of the company. What’s more, for those setting up their business after a period of being unemployed, or perhaps with a migrant background, the MBG offers a special investment programme of up to 50,000 EUR.

Looking for more information?

High-Tech Gründerfonds (venture capital investment firm)


Coparion funding from the KfW Banking Group


Mittelständische Beteiligungsgesellschaften

Business Angels Network Germany


Credit financing from financial institutions

As in-house funds are rarely sufficient and equity financing is not suitable for every venture, you may need to top up the capital requirements with credit from the bank (also called loans). Depending what it is that needs to be financed, regular banks and savings banks offer various different lines of credit.

Investment loans can be used to finance fixed assets for new, alternative or expansion investments and are guaranteed for the medium to long term. With capital loans, you can cover short-term financing requirements such as personnel costs or marketing expenses, and also pre-finance orders.

In addition to demonstrating a promising concept, another decisive factor for banks and savings banks when it comes to granting credit is their ability to remain protected. To this end, they generally request standard bank collateral that they can fall back on in the event of a credit default. Examples of collateral include mortgages, chattel mortgages on machines and vehicles, or fixed deposits. If you do not have enough collateral available (to cover the amount of the loan), you can ask your local Bürgschaftsbank to act as a guarantor.

How to set up bank financing

  1. A business plan is submitted to the bank complete with the necessary documentation
  2. The bank checks the paperwork and evaluates the creditworthiness and collateral
  3. The bank makes a decision
  4. The applicant and bank conclude a credit agreement
  5. The money is paid out

Minimum requirements for bank financing

  • Promising concept
  • Ability to make interest payments
  • Standard bank collateral
  • Personal assumption of liability

Bank loans with public funding

Public funding options can also be included in the finance required to set up your company. Generally speaking, this is a grant for individuals in the form of loans with special conditions, guarantees or also subsidies. As far as these are concerned, it is always important to submit your application before starting your venture. It is only once you have submitted your application that financial and contractual obligations with regard to ordering goods and signing contracts or similar are covered and the business activities are registered.

Please be aware that there are no legal claims to be made with regard to granting public funding.

Promotional loans

Promotional loans are the most common form of public funding for start-ups. For companies based in Germany the KfW Bankengruppe offer various different types of credit. The advantage of these generally centres on their favourable interest rates, lower capital requirements, long maturities, and a repayment-free start-up period for the first few months. Promotional loans are typically requested via regular banks and savings banks (commercial banks), with whom you can also set up your business account – also known as the local bank (or ‘house bank’ principle. It is only when the commercial bank is satisfied with the details of your venture but does not want to make you an offer without funding that it forwards the funding application to the promotional bank. This institution also checks the application and offers up the money if a positive decision is made. An exception to this can be found in some micro-credits, which are usually offered for minor capital requirements of no more than 25,000 EUR. The funding is issued usually based on its intended purpose, which means the relevant proof (in the form of receipts, etc.) of the investment provided must be submitted to the bank retrospectively.

How to set up a promotion loan

  1. A business plan is submitted to the bank complete with the necessary documentation
  2. The bank checks the paperwork in a face-to-face discussion and files an application with the promotional bank, if necessary
  3. Promotional bank checks the application and makes a decision
  4. The applicant and bank conclude a credit agreement, with money paid out in tranches
  5. Provide proof of investments made vis-à-vis the bank

Minimum requirements for public promotional loans

  • Basic requirement is a promising concept with consistent financial planning
  • Professional and commercial qualifications (vocational training and practical professional experience)
  • Equity capital used as an appropriate proportion of the total funding (generally 15 to 20 per cent)
  • Secured overall project funding
  • Aspirations to become a viable venture in the long term
Sample text: Funding
Our capital requirement of EUR 60,000 is to be met on the one hand by our share capital of EUR 30,000. We would also like to apply for a KfW promotional loan of EUR 30,000 from our bank. We believe that we meet all the criteria for such a loan.


As a general rule, public loans are to be secured in line with standard banking practice just like bank loans. If the required level of collateral cannot be achieved through personal collateral, a guarantee of up to 80 per cent of the loan volume can be requested from your local Bürgschaftsbank when setting up a company in Germany.

Further funding options

In addition to public funding options, there are other funding programmes available to help company founders and existing businesses. To name just one example, grants may be requested for providing advisory services, opening up new markets, or recruiting employees under certain conditions.


As they do not have to be paid back, grants are the most popular form of funding; however, they are only awarded in special circumstances. As external experts act as intermediaries, the application process is quite complex, so you should remember to plan in enough time to accommodate this. Students and university graduates can apply to their universities for grants from the EXIST funding programme for technology-oriented and knowledge-based business start-ups.


Crowd-funding and crowd-investing

You should check the extent to which new types of financing are suitable for your start-up. Crowd-funding allows you to access capital to finance your business idea via an interested online community, whilst also relying upon this same crowd as a sales channel or multiplier.

Crowd-investing is another interesting prospect for start-ups with a particular emphasis on growth, and generally involves the crowd participating in a mezzanine investment in the company. Crowd investors stand to benefit from a share in the profits or through the profitable sale of the start-up further down the line (exit).

How to set up crowd-funding and crowd-investing

  1. Check whether the business idea is suitable for crowd-funding or crowd-investing
  2. Plan the crowd-funding campaign, select the type of crowd-financing and platform, and define the target amount and deadline
  3. Prepare necessary documents (story, pitch, videos, and any perks)
  4. Launch the campaign and marketing activities
  5. Achieve objective and receive capital

Minimum requirements for a crowd-funding/crowd-investing campaign

  • Willingness to present the business model in a public forum
  • Extensive, active network and interest in exchanges with the crowd
  • Detailed project planning incl. milestones
  • Innovative business idea with positive growth prospects (particularly in the case of crowd-investing)
  • Impressive management / team of founders
  • Professional business plan or project presentation