The 3.84 million small and medium-sized enterprises with an annual turnover of up to EUR 500 million are the backbone of the German economy. The SME sector accounts for 99.95% of all companies in the country.
The credit conditions in 2025 for German SMEs improved slightly thanks to falling interest rates relative to 2024, but credit standards for SMEs remain extraordinarily high. The uncertain economic and geopolitical outlook is likely to impede a substantial recovery of credit conditions.
At the start of 2025, only one in five companies reported participating in bank loan negotiations. Since SMEs remain reluctant to borrow, partly due to other sources of funding, the high bank credit restrictions may be influenced by SMEs in challenging financial situations seeking additional loans but facing denials from banks due to their low credit standing. The downward trend in interest rates for non-financial corporations since summer 2024 offered hope for a slightly more attractive uptake of bank loan demand of SME in the course of 2025 to meet financing requirements for investments and other expenditures, thereby potentially improving credit constraint indicator.
In 2024, SMEs borrowed a total of EUR 89 billion from savings banks and banks to finance their investments. The average volume of new bank loans taken out in 2023 to finance investments amounted to EUR 152 000 per company. In terms of their share of the total number of loans realized microloans dominate: 69% of all investment loans taken out in 2023 were for a maximum of EUR 50 000, and 79% of all investment loans taken out had a maximum amount of EUR 100 000.
To finance their business activities SMEs generally have a variety of different financing instruments at their disposal. In addition to bank loans, the choice between forms of equity financing (e.g. internal financing or external equity financing) and other forms of debt financing (e.g. bonds), companies can also utilize other financing instruments such as factoring or mezzanine capital. The choice of financing instruments is influenced by company-specific factors, but also by external framework conditions that determine the availability and costs of the various financing instruments.
To finance their investment projects, SMEs in Germany mainly rely on internal financing sources, followed by external borrowing from financial intermediaries. Capital market financing is rarely used and generally only an option for larger SMEs. Internal financing from profits, depreciation, amortization and provisions accounted for around 51% of total investment financing in 2023. Around a third (32%) of the financing requirements for investment projects of SMEs in Germany were covered by loans from banks and savings banks. Loans are therefore the most important external source of financing for German SMEs. The second key component of external financing for SME investment projects is public funding. The share of subsidies in the financing of the total investment volume amounted to 13% in 2023. Alternative forms of financing, such as mezzanine or equity financing, on the other hand, are still only of secondary relevance for investment financing in the German SME sector. Newer financing instruments, such as loans from credit funds and crowdfunding have also not yet been able to gain widespread acceptance. Other sources of financing accounted for only 4% of the total financing volume of investments in the German SME sector in 2023.