Securing the short, medium and long-term financing of entrepreneurial activity represents a central challenge for German medium-sized companies. In the aftermath of the global financial crisis, medium-sized companies are regularly confronted with a restrictive approach by banks when granting loans. The reasons for the slowed-down practice of lending are closely linked to the “Achilles heel of German SMEs”: the historically thin equity base, which results in a poor rating.

The financing of medium-sized companies in restructuring and reorganization cases is a particularly significant problem in practice, the successful implementation of which is of the highest importance for the maintenance of the company.

Developments in corporate financing offer opportunities to change the financing structure of medium-sized companies and secure financing. Numerous new financing products are now being offered by private investors, banks and savings banks as well as public funding institutions.

These new, alternative financing instruments can supplement the usual external financing via bank loans and contribute to strengthening the equity base of medium-sized companies.

Our proven consulting approach

Building on our many years of experience, we offer a comprehensive advisory approach on all aspects of SME financing. In doing so, we always pursue an integrative approach, in which we take into account both the financial and tax effects in addition to the causal financing requirements and integrate these into our process as part of a comprehensive optimization approach.

Our experts in the fields of finance, tax law and capital market law offer our clients comprehensive, active advice. Our existing network is based on numerous successfully implemented projects and includes well-known (issuing) banks, restructuring and reorganization consultants as well as specialized lawyers.

The focus of our work is also the implementation of event-related financial and tax due diligence in advance of an upcoming financing.

We support our clients on the basis of a risk-oriented approach in the ongoing monitoring of the current financing situation, the optimization of the financing or a refinancing as well as clients in the context of project-related challenges.

Financing issues

The reasons why a company wants to raise capital through external financing can vary in nature. The following financing events take into account company phases, economic situations, shareholder structures, financing volumes and control options.

Venture capital is that part of equity financing that focuses on earlier company phases with a minority shareholding. The term venture capital originally comes from the German-speaking area and can be translated into German as venture capital or risk capital. The abbreviation VC is often used synonymously. The translation into German also suggests that VC is a form of investment in which there is a certain risk for the investor. An example can be that the capital brought in does not increase or is even completely lost. Venture capital investments can be made at various stages in the company’s development. The so-called stages are used here. The first and most risky stage is the seed financing, which takes place when the startup is still in the seed stage and the VC seed stage capital is investing.

Seed Capital can be used to close potential capital shortfalls when founding a company. Seed Capital should enable the founding team to implement the idea at all, despite the high initial costs for founding a company, office equipment and staff. Seed Capital is offered, for example, by business angels who, in addition to financing, also provide their expertise. When the break-even point is reached, this financing phase goes into the early stage, whereupon the investor environment also changes. This transition forms the basis for start-up financing by venture capital investors in the coming growth phase.

An early stage financing is usually used to prepare the rollout of the production or the marketing of a company. The aim of this stage is to prepare the entire internal structures of the company for growth. This includes all value creation activities and business processes.

Following these preparatory measures, the company is at a stage from which venture capital can be used. Venture capital is mostly fully liable equity, which is made available to companies as venture capital after completion of the start-up phase.

Growth capital is made available by selected investors and is intended to promote already established companies. This is achieved, for example, by investing in the sales network and expanding production and logistics capacities. This allows market shares to be expanded step by step. The prerequisite for the provision of growth capital is usually that the company is in the maturity phase and basic processes have already been successfully implemented.

The sale of company shares below the threshold of 50% is referred to as a minority interest. The background to such a transaction is often the raising of growth capital, which enables the company’s next strategic steps to be completed. It makes sense to make the approach to investors dependent on whether a minority or majority stake wants to be sold. Due to the individual investment philosophies, there are different investor groups. Due to different investment philosophies, it makes sense in this situation to address a different group of investors than if you intend to sell the majority of the shares.

Pending changes in the group of shareholders can limit the future development of the company. The handover of a company to the next generation, the withdrawal of a shareholder or the strengthening of the shareholders are developments that should be responded to early on. Corporate succession could be secured, for example, through an internal management buy-out (MBO) or an external management buy-in (MBI). In an MBO, the managing directors become shareholders and take over the shares of the previous owner. In an MBI, the company shares are taken over by an externally appointed management. There is also the option of selling the company to an external investor such as a private equity company. Such financing events usually require the acquisition of more than 50% of the shares and are known as majority holdings. In terms of their complexity, they differ greatly from minority stakes, which is why another type of investor should be considered for company successions and buyouts.

Mezzanine capital is directly attributable to equity in the balance sheet, is fully liable and also has voting rights in the amount of the shares. In terms of ranking and collateral, however, this form of financing has outside capital characteristics. Because of these characteristics, this form is called hybrid financing. There are different types of mezzanine capital, such as the inclusion of a silent partner, subordinated loans or profit participation certificates and bonds. In principle, mezzanine capital is suitable for realizing management buyouts (MBO), project financing, M&A activities or growth targets. In the start-up phase, mezzanine capital is only partially suitable due to the high requirements and transaction costs.

Private Debt: In order to obtain loan financing without a bank, so-called private debt financing can be used. This form of financing is currently very popular, especially among medium-sized companies, so that the number of specialized funds for this financing is currently increasing sharply. External financing is provided by institutional investors outside the capital market. One of the best-known forms is so-called direct lending, whereby tranches of up to EUR 150 million are made available directly to the requesting company as outside capital from individual funds or smaller groups. Another, less used form of private debt financing is syndicated lending. By joining together several investors, larger volumes can be processed. In many cases, the financial partners are operationally managed by a credit institute.

A separate investor category has emerged for economically distressed or already insolvent companies. These specialize in accompanying the shareholders in an economic crisis and creating opportunities to avert it. This can be done, for example, by purchasing loan receivables (debt-to-equity swap), acquiring the company in full with and without an insolvency plan, or by adding equity to repay critical liabilities. These investors also offer skills in negotiating with banks or other creditors of the company, optimizing corporate financing and processing.

Financing solutions

Credit or leasing? Promissory note or corporate bond? Or maybe a promotional loan would be the best financing solution? Entrepreneurs who need capital to run their business are spoiled for choice. The financing profiles provide answers to the most important questions: What is it and how does the instrument work? What are the pros and cons? For whom and for what purpose is the instrument particularly suitable?

Bank credit means a bilateral agreement to provide capital between the bank as the creditor and the company as the debtor. Financing of current assets is presented as short-term working capital loans on current accounts. Variants can be:

  • Current account credit: is used to finance current assets.
  • Guarantees, letters of credit: The bank provides its creditworthiness as surety and / or secures commercial transactions.

Loans are issued for medium to long-term financing purposes. They are used – mostly secured by property – for investments, for the financing of real estate and means of production as well as for growth, acquisition and replacement financing. Fixed or variable interest rates can be agreed with different terms:

  • Annuity loan: constant installments, interest and repayment portion.
  • Repayment loan: constant repayment amount plus interest on the remaining balance.
  • Fixed-term loan: interest payment during the term; Repayment of the entire loan amount at the end of the term.

Promotional loans and, in some cases, also grants are provided by the German federal promotional banks (KfW) and the federal states such as B. the NRW.BANK, LfA Förderbank Bayern, L-Bank etc. or also awarded by the European Investment Bank.

There are a large number of programs with a wide variety of funding goals and conditions. There are particularly favorable funding programs for investments in innovations and environmentally friendly technologies as well as business start-ups. Via the European Recovery Program (ERP), the Kreditanstalt für Wiederaufbau (KfW) awards e.g. Innovation loans also as subordinated loans. These can be added to equity so that credit lines and rating are not impaired.

These loans are always applied for through banks. They advise on the selection of the optimal funding program and provide support with the application.

Advantages are:

  • Usually favorable interest rates, currently from 1.00 percent p.a.
  • Terms of up to 20 years.
  • long fixed interest rate and thus a secure calculation basis.
  • initial repayment periods are possible.

Leasing is an attractive financial product for the revolving investment financing of economic goods. A distinction is roughly made between two variants:

  • Finance leasing: investment risk and later purchase option from the lessee.
  • Operational leasing: the lessor bears the full investment risk, installments are billed as expenses by the lessee and the property is usually returned after the end of the contract.

The leasing of economic goods offers many advantages:

  • The equity and thus the credit line are spared.
  • The credit leeway is expanded through increased collateral values.
  • Tax expenses can be optimized via the effort.
  • Liquidity is preserved.
  • Capital goods are always on the cutting edge of technology.
  • Planning security thanks to fixed leasing rates, which ideally are pay as you earn or pay per use.
  • Balance sheet neutrality: With the right design, the leased item remains “off balance” for the lessee.

Both the giver and the recipient enjoy a great deal of flexibility when drafting leasing contracts. In this way, maturities and residual values can largely be agreed individually.

Structured finance consists of complex, tailor-made solutions that companies B. for acquisition or project financing to complete (from 20 million euros and up).

The financings are usually syndicated, i. H. Bundled in consortia: The loans are granted by several credit institutions under the direction of a consortium leader.

Syndication enables companies to obtain debt capital for a specific purpose through commitments from multiple investors on uniform terms. The main advantage for the borrower is the higher volume, which can be generated in a package instead of a series of bilateral loans. A syndicated loan is often easier and more flexible to process for companies, as the lead manager is available as the central contact for all matters that arise during the term of the contract. This pays off, especially with complex projects: the arrangement can be more easily adapted to changed conditions, but at the same time offers a high level of financial security with credit terms of 3 to 5 years. Often, different legal requirements or the use of different currencies can be taken into account.

Lenders can spread risk across multiple shoulders and create better securitization opportunities. The syndicated loan is often the first step towards the capital market.

Promissory note loans are used as an alternative capital market product for refinancing or diversifying the debt position. As the name suggests, the promissory note is a loan that is bilaterally agreed with investors.

The structure – such as B. such as term, interest rate or repayment modalities – is freely negotiable in the contract. As a loan, the borrower’s note is not subject to any market valuation. Promissory note loans are currently issued with a volume of EUR 20 million or more and with terms of typically 3 to 10 years. With lean documentation, it is an efficient transaction process that usually only takes 8 to 10 weeks.

Companies often expand their investor base with promissory note loans. An external rating and complex reporting requirements are not required. Due to the high level of confidentiality, promissory note loans are particularly interesting for family and owner-managed companies.

Companies finance themselves through a bond by raising funds in the debt capital market. Investors leave a fixed amount to the company. In return, the investors receive interest payments during the term and repayment of the amount at the end of the term. Due to their contractual nature, bonds are part of debt capital and are usually issued with a volume of between 150 and 500 million euros.

They can be roughly classified according to rating levels into “investment grade”, “high yield bonds” and “unrated bonds”. It takes about 6 to 8 weeks to issue a bond. Bonds are traded as securities on the stock exchange and thus give the issuer visibility on the debt capital market. As a liquid, tradable instrument, they serve to optimize the maturity structure and expand the investor base.

However, bonds are associated with higher costs than the promissory note or the loan. They are particularly suitable for companies with greater financing needs that are already capable of issuing, i.e. H. can meet the extensive documentation and reporting requirements as well as regulatory requirements.

The securitization of trade receivables via the “Asset Backed Commercial Paper Program” (ABCP) has been an established form of financing receivables portfolios via the capital market for many years and is therefore an alternative to traditional factoring or forfaiting.

As with factoring, the company continuously sells outstanding receivables as part of a securitization transaction. In the case of a securitization, the factoring company is replaced by a special purpose vehicle (SPV) established specifically for the transaction. The SPV is refinanced by issuing short-term, externally rated securities (“ABCP”) that are placed with investors.

In addition, the arranging bank provides the SPV with a line of credit that ensures that the SPV can be refinanced independently of the capital market. Thus the advantages of factoring and the capital market are combined.

As part of a securitization transaction, a company’s European and global receivables portfolios can be financed in one transaction. In addition to attractive refinancing conditions, securitization is also an instrument for working capital management.

Hybrid financing is used for special business situations, in particular to strengthen equity. They are therefore usually complexly structured and geared towards the long term. According to IFRS, hybrid financing has the character of equity, but is not as expensive as real equity. Examples are silent partnerships, subordinated capital (also called mezzanine), profit participation rights, convertible bonds and bonds with warrants.

Hybrids are usually used by companies that have already been rated and that do not have equity – e.g. B. via a capital increase – want to take up. They open up more leeway on the liabilities side of the balance sheet and also allow a company’s risk structure to be improved. Due to the subordinate collateral, the classification as liable capital as well as tax and company law advantages, hybrid capital can represent an interesting alternative to pure debt capital for companies in growth and acquisition situations or under rating pressure.

In the financial world, “equity products” are securities that a company uses to raise capital via the capital market. Banks stand by the companies’ side and accompany them in the targeted transactions on the capital market, i.e. the issue of shares and share-based financing instruments.

The main types of transactions include a. the IPO, the placement of primary (new shares) or secondary shares (existing shares) on the capital market, the implementation of rights issue capital increases and share buybacks as well as the issue of convertible and exchangeable bonds or takeover offers through stock swaps (tender offers).

The services of the bank are often complex: In the case of an IPO (Initial Public Offering), for example, they include advice and preparation for the IPO as well as practical implementation, i.e. marketing, pricing, structuring and syndication as well as placement by the equity sales units of a company Bank.

Our services in the area of SME financing

  • Financial Due Diligence
  • Tax-optimized financing structure
  • Preparation and support of bank and investor discussions
  • Company comparison and benchmarking
  • Alignment and implementation of internal controlling
  • Support with IPO / IBO IPO
  • Structuring of mezzanine capital, also taking account of accounting and tax law implications
  • Support and structuring of private equity investments
  • Assistance in applying for funding
  • Active advice on venture capital investments
  • Balance sheet and liquidity optimization using financing instruments
  • Support with financing leasing / factoring

  • Bond conception
  • Examination of maturity for issuance and capital market capability
  • Support in meetings with investors
  • Accompanying the rating process
  • Selection and coordination of the stock exchange
  • Marketing concept
  • Addressing investors / analysts
  • Monitoring of possible covenants
  • Processing of repayment or follow-up financing

  • Accounting policy
  • Credit mediation
  • Rating from the perspective of the banks as well as DATEV rating
  • Balance sheet and liquidity optimization using financing instruments
  • Balance sheet optimization through leasing, factoring
  • Balance sheet optimization by changing company pension schemes

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CVA, IFRS-Specialist/CINA