U.S. small business aid is marred by delays and confusion. German businesses have it ‘in my bank account the next day’

April 16, 2020, 3:43 PM UTC

Like thousands of other small-business owners in Germany, Andrea Mayr was forced to temporarily shutter her hair and beauty salon in the middle of March.

Popular with film-production crews as well as individual clients, Maske Berlin—10 minutes’ stroll from the famed KaDeWe department store—may be able to reopen in early May, according to new guidelines issued by Angela Merkel’s government on Wednesday. But that’s still seven weeks of closed doors.

To help Maske Berlin weather the coronavirus shutdown, Mayr has been able to tap into multiple official programs. Her staff have been furloughed under a scheme called Kurzarbeit (“short time work”), in which the government pays at least 60% of their wages, and Mayr also requested a liquidity grant via a program being administered by each German state’s development bank—in her case, Investitionsbank Berlin.

“I was, like everyone, on the website of Investitionsbank Berlin, and because I have more than five employees they gave me €15,000 ($16,300),” Mayr says. “I was in the waiting line for four days, but then when I filled out the form it was in my bank account the next day, which was unbelievable.”

Mayr’s experience is typical in Germany, where federal and state administrations are battling COVID-19’s economic onslaught with a range of grants and emergency loans—what she tapped into was a Berlin program worth €1.3 billion in total.

But business owners (and their workers) in many other countries can only dream of such efficiency.

In Italy, delays caused by bureaucracy and understaffing may for many businesses push back the disbursement of state-guaranteed loans as far as June or July. In the U.K., just one in five companies applying for government-backed loans have been successful, almost a month after the relevant scheme’s launch. And in the U.S., the Small Business Administration’s rollout of multiple business-rescue loans has been fraught with delays and confusion.

So, what’s different in Germany?

For one thing, the schemes being used to keep businesses afloat have been around for a good while—though their conditions have in some cases been loosened, to adapt to the current situation.

The Kurzarbeit system for maintaining salaries dates back to 1950s and was credited with helping Germany emerge from the financial crisis relatively unscathed. And, as in the 2008 financial crisis, authorities are using loan programs at the federal state-owned development bank, Kreditanstalt für Wiederaufbau (KfW), to funnel credit to the larger businesses that need it to survive. Economists credit these schemes with keeping the German unemployment rate from spiking during the global financial crisis, as happened in neighboring countries.

“What we hear from our colleagues in other European countries is that all these countries are working on respective programs for getting state aid in place,” says Ulrich Klockenbrink, a counsel at the Hamburg office of corporate law firm Latham & Watkins. “Germany started with these programs very early and very proactively.”

According to the latest figures from KfW, the bank has doled out nearly €23.6 billion since March 23 in coronavirus loans to more than 10,600 businesses, who apply through commercial banks.

“KfW can act as soon as the application arrives via a shared digital platform,” says a KfW spokesperson in an emailed statement. “Applications up to €3 million will be approved immediately without a further check (which can take just a few minutes in the best case, at maximum one day). Those between $3 million and $10 million will be checked on an accelerated ‘fast track’ procedure including only the basic data (taking about two to three days) and only larger applications above €10 million are checked individually, taking an estimated time of about seven working days.”

KfW does not disclose the rate of approvals—it says the disparity in approval times, depending on the size of the loan, would create distortion effects.

However, despite the plethora of oven-ready programs that the German federal and state governments have been able to urgently deploy, money does not—as Klockenbrink puts it—”fall from the sky.”

Particularly in the case of large enterprises, respective creditor agreements need to be negotiated on an individual basis. “These creditor agreements have to fit into the financial structure of the supported business,” says the lawyer. “The state generally expects to have senior status, at least in terms of maturity…There are of course exceptions, and this has to be negotiated, but this is the general approach.”

“This makes sense from the taxpayer’s perspective,” says Klockenbrink.

The German Taxpayers’ Federation—an organization that campaigns for low taxes and a lean state—claims “there are initial indications that funding has been misused.” The group says in a statement that, “where the grants were issued very quickly, [the applications] must be checked retrospectively” by tax officials.

From Mayr’s perspective, the grant Maske Berlin received so swiftly helped her to mentally deal with the initial shock of the coronavirus restrictions—but she anticipates having to make further financial plans.

“We are closed for seven weeks,” she says. “In the end, I will come out of the coronavirus crisis with debt.”

Correction and update, April 16, 2020: This post has been updated to correct the translation of the German word Kurzarbeit as “short time work.”

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