Financing SMEs and Entrepreneurs 2026: Germany
Table of contents
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 2024 for German SMEs improved slightly thanks to falling interest, 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 realised 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 utilise 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 ( (KfW, 2025[1])).
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, amortisation 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 (KfW, 2025b). 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 ( (KfW, 2024[2])).
ECB rate cuts have notably improved credit conditions for both housing and corporate financing. Credit growth is recovering gradually while the central bank balance sheet normalises. Accommodative monetary policy creates favourable financing conditions that should support investment and consumption over time, however, geopolitical uncertainties and weak demand currently overshadow the positive monetary impulses.
The 3.84 million small and medium-sized enterprises with an annual turnover of up to 500 million euros are the backbone of the German economy. The SME sector accounts for 99.95% of all companies in the country and are also a key pillar of the labour market. In 2024, a total of 33.01 million people were employed in SMEs. This corresponds to a 71.6% share of overall economic employment. Their great economic importance is also reflected in the turnover figures. In 2024, companies in Germany generated a total turnover of around 9 000 billion euros. SMEs generated around 5 200 billion euros of this, which corresponds to a share of 57%. SMEs also make a decisive contribution to economic development in Germany through their investment activities, as they invested 219 billion euros in new plants and buildings in 2023. This corresponds to 44% of the gross fixed capital formation of all companies (KfW, 2024).
In 2023, 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 realised 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. The proportion of very large investment loans of over EUR 500 000 was 7%. In terms of maturity, loans with terms of up to five years dominate, as they accounted for around 63% of all investment loans in the SME sector. The high relevance of short-term financing continues to reflect the prevailing uncertainty in the corporate sector. Longer-term financial commitments tend to be avoided in the absence of confidence, security and the associated predictability (KfW, 2024).
Although loans from banks and savings banks continue to be the most important external source of financing for German SMEs, the fundamental tendency of companies to consider bank loans to finance investments has weakened noticeably over the past two decades. The proportion of investing SMEs that have used bank loans to finance their investments has almost halved in the last 20 years. From 40% in 2004 to 23% in 2023, this downward trend is evident in all size segments of the SME sector (KfW, 2025a).
In 2024, the credit conditions for German SMEs have slightly improved due to falling interest rates but credit standards for SMEs remain extraordinarily high. According to Table 1. the interest rate spread amounts to 80 basis point. The uncertain economic and geopolitical outlook is likely to impede a substantial recovery of credit conditions throughout the year.
The KfW credit constraint indicator, based on business surveys shows that an above-average share of SMEs experienced credit restrictions in the first quarter of 2025, with the share being the highest since the survey method change in 2017. Every third SME reported obstacles in obtaining credit. The current record level of the credit constraint indicator for SMEs is still below the levels observed during the global financial crisis. It is important to note that since the introduction of the new method in 2017, only companies that are in negotiations with their banks are entitled to provide their assessment.
At the start of the year, 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 offers 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.
The strict practices adopted by banks are a consequence of the higher credit risk associated with the ongoing fragile economic conditions and the current number of insolvencies in Germany. The rise in non-performing loans from SMEs to 3.8 % of all SME loans, which exceeds the increase observed among non-financial institutions in general, may have prompted banks to adopt particularly restrictive measures.
Credit obstacles faced by industrial SMEs were also not considerably reduced despite the economic tailwind in the first quarter, which was primarily driven by the front-running of tariffs in the industrial sector. Current international tariff policies weigh on the firm-specific outlook and the credit assessment of SMEs. Given the economic hardship that may result from aggressive tariff policies, restrictive credit standards are not expected to change in the coming months.
SMEs and start-ups find themselves in need of financial support to fuel growth, innovation, and expansion. While debt instruments, such as loans and bonds, are a traditional route for securing funding, it comes with interest payments and collateral requirements. Therefore, the burden of debt can be overwhelming for companies that are yet to establish stable revenue streams. As an alternative, venture capital (VC) offers a promising solution that aligns financial support with the unique needs of young and innovative companies. Venture capital provides SMEs and start-ups with capital without the immediate pressure of repayment that accompanies traditional debt. This equity-based investment model allows growth-oriented companies to leverage funds for scaling operations, strategic investments, and market expansion while operating with more financial flexibility. Moreover, venture capital not only offers financial resources but also brings non-monetary benefits. Experienced venture capitalists often play an active role in guiding the companies they invest in through mentorship, strategic advice, and industry connections.
VC funding has expanded significantly over the last decade. This has led to 29 start-ups with a valuation of more than EUR1 billion. Since 2023, VC investments in Germany have stabilised at slightly more than EUR 7 billion per year (2025: EUR 7.2 billion). Germany thus remains in the middle of the pack internationally with regard to VC-investments as share of GDP (DEU 0,16%, FRA 0,29%, USA 0,9%). At the same time, however, around 70% of VC investments in Germany come from abroad. While VC investment have stabilised, the number of deals with a size above EUR 1 million have declined since 2022 from more than 600 deals to slightly less than 400 deals in 2025. This implies that the size of financing rounds has increased substantially.
The duration of payment delays has decreased, indicating more consistent credit management. The average period of arrears fell to just 8.41 days in the second half of the year 2024. Lenders' increased attention to outstanding receivables is likely due to the deteriorating economic situation and increased default risks.
As a result of the economic development, the number of insolvencies has increased. In 2024, the number of corporate insolvencies rose, reaching its highest level since 2015.
The European Recovery Programme (ERP) Special Fund provides a differentiated and well-established system of promotional loan instruments for different start-up phases. The KfW promotional loans have been established on the market for several decades and are available with attractive conditions for financing investments, including investments in climate-neutral and digital transformation. The German government supports SMEs with its credit-based ERP funding instruments, which are open to all business sectors. These programmes are usually passed on to the final borrowers by the Kreditanstalt für Wiederaufbau (KfW), the Federal Promotional Bank, via the house banks (private banks, cooperative banks and savings banks). Various programmes cover the investment and working capital needs of newly established and established SMEs (up to 500 million euros turnover).
Start-Ups, business successors and young SME
The ERP Start-Up Loan-StartGeld (ERP-Gründerkredit-StartGeld) is available for start-ups, freelancers and small businesses that have been active on the market for less than five years and require little start-up capital.
The ERP-Promotional Loan for start-up and succession (ERP-Förderkredit Gründung und Nachfolge) was launched by KfW together with the German Guarantee Banks in November 2024. With the loans at favourable interest rates, which are accompanied by a 100% guarantee of one of the sixteen guarantee banks for the house bank, start-ups and especially business successors can partly be financed (35% of the eligible costs).
Small and medium-sized enterprises ERP-SME-Promotional-Loan (ERP-Förderkredit KMU) and larger SMEs KfW-Promotional-Loan-For-Large-Mid-Sized Companies (KfW-Förderkredit großer Mittelstand) now each have their own promotional programme for financing projects as well as start-ups and company takeovers. The improved conditions of the ERP and KfW promotional loan programmes allow SMEs to finance their projects at favourable and attractive conditions. Young enterprises and those in regional assisted areas continue to receive particularly strong support.
Innovation and digitisation support in Germany includes the ERP-Digitisation-and-Innovation-Loan (ERP-Digitalisierungs- und Innovationskredit) and the ERP-Mezzanine for Innovation (ERP-Mezzanine für Innovationen).
The KfW Syndicated Loan for Innovation and Digitalisation formerly KfW-Loan-for-Growth, KfW-Konsortialkredit Innovation und Digitalisierung), which supports larger projects in the area of innovation and digitalisation, including investments and working capital.
The KfW offers a wide range of promotional loans for financing projects related to energy efficiency.
The KfW Energy Efficiency Programme for production facilities and processes promotes investments that achieve significant energy savings in production. It supports energy efficiency measures within the production plants and processes of companies, both in Germany and abroad.
The Federal Programme for Energy and Resource Efficiency in the Economy aims to support measures that save energy and reduce CO2 emissions in Germany. It offers low-interest loans with a repayment subsidy of up to 60%.
The KfW Climate Protection Initiative for Enterprises promotes investments aimed at reducing, avoiding, and eliminating greenhouse gas emissions, adhering to the technical criteria set by the EU taxonomy for sustainable management. This initiative offers lower interest rates specifically for small and medium-sized enterprises (SMEs).
The Renewable Energies Standard programme supports projects focused on generating electricity and heat from renewable sources, such as wind, photovoltaics, and biomass, and facilitates the integration of renewable energies into the energy system, including energy storage solutions.
The KfW-Syndicated-Loan-Sustainable-Transformation (KfW-Konsortialkredit Nachhaltige Transformation) offers larger companies flexible financing for ambitious, sustainable and transformative measures that meet the technical criteria of the EU taxonomy.
INVEST grant for venture capital
INVEST is a funding programme of the Federal Ministry for Economic Affairs and Climate protection. It was launched in 2013 and further developed in 2017 and 2023 to support private investors who want to invest in young and innovative companies. Under this programme, business angels who invest in innovative start-ups receive an acquisition grant of 25% of the investment amount. The investor must provide at least EUR 10 000 to the company. A maximum of EUR 100 000 in acquisition grants is approved per investor. In addition, natural persons can receive a lump-sum tax compensation with the exit grant amounting to 25% of the profit made from the sale of his/her shares, supported by the acquisition grant. The exit grant is limited to 25% of the investment amount of the INVEST shares, and the shares must be held for at least three years.
KfW Capital
As a 100% subsidiary of the KfW Group, KfW Capital has invested in German and European venture capital and venture debt funds since its establishment in October 2018, thereby strengthening the funds’ capital base. The aim of KfW Capital is to improve access to capital for innovative technology-oriented growth companies in Germany through financially strong funds. KfW Capital has doubled the annual amount of funding to EUR 400 million from 2021 onwards. Funding takes place particularly as part of the ERP-VC Fund Investments programme as well as of the ERP/Future Fund Growth Facility as a module of the ‘Zukunftsfonds’ (Future Fund).
ERP-Financing-Instruments in co-operation with the European Investment Fund (EIF)
ERP Special Fund and EIF have been cooperating very successfully in the field of equity and mezzanine financing for nearly twenty years. This makes an important contribution to ensuring that innovative start-ups in Germany have access to capital. The financing instruments include, amongst others, the ERP/EIF Venture Capital Fund of Funds with a total fund volume of EUR 3.7 billion.
Zukunftsfonds (Future Fund)
The ‘Zukunftsfonds’, set up by the Federal Government in 2021, is providing EUR 10 billion until the end of 2030 for a venture capital fund for forward-looking technologies (‘Future Fund’) at the KfW to foster the German venture capital market. Factoring in the contributions from private-sector and public-sector partners, the Future Fund, with financial contributions from the ERP Special Fund, aims to mobilise at least EUR 30 billion in start-up funding. The overarching principle of the Future Fund is to broaden the German VC market, requiring a substantial private-sector investment contribution, also for the sake of market principles and in compliance with European competition and state aid rules. The fund addresses various development phases of start-up financing, with a special focus on start-ups going through the capital-intensive scale-up phase, with a set of closely interlinked modules, comprising both a qualitative and quantitative expansion of existing instruments as well as the development of new modules to increase start-up funding. Within the Future Fund, the ERP/Future Fund Growth Facility, with a total of EUR 2.5 billion, as well as the GFF-EIF Growth Facility, with a volume of up to EUR 3.5 billion, increase fund volumes and facilitate larger financing rounds for the period up to 2030. The Green Transition Facility, managed by KfW Capital, invested another EUR 100 million into green tech and climate tech funds. The amount was already fully invested. In 2023, the European Tech Champions Initiative was launched with a total fund size of up to EUR 3.75 billion to tackle the European scale-up gap; Germany is contributing EUR 1 billion alongside the EIB Group and several contributing Member States. A fund of funds for growth capital (Growth Fund for Germany) aims in particular to mobilise capital of institutional investors for start-ups. The KfW programme Venture Tech Growth Financing (VTGF) was expanded in 2022 with a volume of up to EUR 1.3 billion to strengthen the area of venture debt in Germany. The DeepTech & Climate Fund (up to EUR 1 billion) directly invests in deep tech and climate tech start-ups together with private investors. Since 2023, it has invested in several start-ups.
With the launch of the EUR 1 billion fund-of-funds “Wachstumsfonds Deutschland”, a key module of the Future Fund to provide institutional investors with attractive investment opportunities in the Venture Capital asset class has been realised. It is funded primarily by private resources. Besides the Federal Government and KfW Capital as anchor investors, the fund has more than 20 major institutional investors including insurers, superannuation funds, foundations, asset managers and large family offices. The Wachstumsfonds Deutschland invests in German and international VC funds. This will significantly improve access to urgently needed growth capital for start-ups and innovative technology firms while strengthening Europe and Germany as an innovation location.
Further instruments and components of the Future Fund have been implemented throughout the year 2023, e.g. improving access to venture capital for female founders and investors with the Emerging Manager Facility. Under this programme, KfW Capital is investing in smaller private venture capital (VC) funds managed by women or gender-diverse teams. These teams are often very young first-time entrants to the VC market (“emerging managers”). Overall, EUR 200 million is available from the Future Fund for the new programme until 2030.
Furthermore, HTGF Opportunity with a volume of EUR 660 million was launched in 2024 as a co-investment fund to provide additional growth capital to particularly promising companies in the investment portfolio of the HTGF Seed Funds (HTGF I to IV), and RegioInnoGrowth will address start-ups and SMEs which are typically not addressed by venture capital funds.
In early 2025, the new Impact Facility started, managed by KfW Capital with a volume of EUR 200 million that invests into funds that focus on ecologically or socially relevant topics.
Later in 2025, the programme Scale-up Direct will launch, a programme through which KfW Capital will invest into single companies as a co-investor with their portfolio GPs. The volume of the programme will be EUR 1 billion, and the targets are companies in relevant fields such as AI, hydrogen technologies, quantum computing, life sciences and climate tech.
High-Tech Gründerfonds (HTGF)
The High-Tech Gründerfonds (HTGF) is an early-phase funding programme for highly innovative and technology-oriented companies whose operative business activities started less than three years ago. To be eligible for financing, projects must have shown promising research findings, be based on innovative technology, and the market situation for the product must be bright. In addition to providing capital, the fund ensures that the management of young start-ups receives the necessary help and support. An initial funding amount of up to EUR 1 million is provided, with a total of up to EUR 4 million usually being available per company. In February 2023, the fourth fund, HTGF IV, with a volume of EUR 493.8 million, was closed.
Mikromezzaninfonds – Micro-Mezzanine Fund
The Micro-Mezzanine Fund was launched in 2013 and provides dormant equity of up to EUR 50 000 for small companies and business starters and of up to EUR 150 000 for companies within the special target group. The fund’s special target group are companies that provide training, are operated by women or people with a migrant background, or were founded by persons who were formerly unemployed. Social enterprises operating commercially are also eligible to apply for financing on the terms of the special target group, as are companies with a focus on environmentally-compatible production.
Source: See Table 2
References
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Please cite this publication as: OECD (2026), Financing SMEs and Entrepreneurs 2026: An OECD Scoreboard, OECD Publishing, Paris, https://doi.org/10.1787/075d8058-en
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