Brussels, 06/02/2008 (Agence Europe) - In Frankfort on Monday 4 February, German banking group KfW and the European Investment Bank (EIB) signed a risk sharing framework agreement for KfW's SME programme “Capital for Work and Investments” (Kapital für Arbeir und Investionen). Under this risk sharing agreement, the EIB will, between 2008 and 2010, assume risks for a total of €100 million arising in connection with subordinated financing offered under the KfW programme.
The KfW SME programme “Capital for Work and Investments” is part of the “Unternehmerkredit” (entrepreneur loan) family of products that offer subordinated financing which specifically targets start-up entrepreneurs, the self-employed and SMEs. This subordinated financing combines the advantages of debt and equity capital: entrepreneurs do not need to provide any collateral for these loans. A long loan term featuring a grace period of up to seven years eases liquidity pressure during the investment phase while helping the companies to retain their profits and, in this way, to increase their equity capital.
The programme component “Capital for Work and Investments” is tailored to the needs of established companies that have already been active in the market for over five years. Companies are using this programme mainly to finance investments within Germany that contribute to their sustained economic success while creating or safeguarding jobs. Similar investments by German companies in other countries are also being financed. The subordinated financing under this programme is tied to a classic loan of the same amount for which standard bank collateral is provided. The volume of this kind of financing package is limited to €4 million per project. The programme is offered through commercial banks, which assume the liability for the classic loan that they onlend. KfW, in turn, releases the banks from liability for the subordinated tranche, for which no collateral is provided. The interest rate depends on the credit rating of the company receiving the funds. In the year 2007 a total of €323 million was committed under this programme, with 50% offered as unsecured subordinated loans. (O.L.)