If you live in Germany and want to take that first step toward self-employment by setting up a business, there are several different ways to fund it. One way is to apply for a government-backed startup grant.

This article will tell you what a startup grant is, how to apply for it, and whether this type of financial support is right for applicants. We’ll also guide you through the challenges and downsides of this particular program and present other funding options for an early-stage venture in the country.

What’s in this article?

• What is the startup grant?
  
• Who is eligible for a startup grant?
  
• What are the downsides of the startup grant?
  
• What financing options are available to founders in Germany?
  
• How important is digital documentation in loan decisions?
  

What is the startup grant?

The startup grant is a form of financial support for unemployed individuals in Germany who want to start working for themselves. Germans also colloquially refer to it as the “founder grant” or “new business grant.” It was conceived as a way to make the transition from unemployment to self-employment easier and as a safety net during the initial setup period. The Federal Employment Agency (BA) awards startup subsidies through its regional employment agencies, known as job offices, to applicants who meet the eligibility requirements.

Prerequisites for obtaining a startup grant

According to Section 93 of the German Social Code (SGB), Book III, the BA will only award startup grants to persons who:

• Are receiving unemployment insurance.
  
• Are entitled to unemployment insurance for at least 150 days when they begin their self-employment.
  
• Will be self-employed full-time, and thus will no longer be unemployed.
  
• Provide evidence of sufficient knowledge and ability to perform the job in question as a self-employed person.
  
• Demonstrate the viability of their startup through an expert opinion. Bodies such as the Chamber of Commerce and Industry (IHK), Chambers of Crafts (HWK), banks, and professional associations can issue expert opinions. Further potential sources include tax advisors, financial auditors, management consultants, or other organizations that advise on emerging ventures.
  

How much is the startup grant, and for how long is it paid out?

The startup grant follows a two-phase structure. In the initial period, the founder receives seed funding to cover basic living expenses and provide a safety net. The BA pays the owner their most recent unemployment benefit plus an extra €300, creating a temporary buffer while the owner gets up and running.

After the first six months, the owner has the option to apply for a subsidy for an additional nine months. But, during this second phase, they will receive a flat €300—and no longer the unemployment insurance previously paid.

Applying for the startup grant

If you’re planning to apply for a startup grant from the BA, begin by arranging a consultation with a local job placement officer by phone or online. They will decide whether the subsidy is open to applicants, and tell you which documents must be submitted with your submission.

The second step is to prepare all the necessary records. A detailed overview appears in a Federal Employment Agency brochure. The website also has a template letter for requesting your expert opinion.

Next, complete the Phase 1 Startup Grant application online and upload all required files. The BA reviews the submission and, if approved, notifies you of the decision. You do not have a legal entitlement to the startup grant, meaning the BA is also entitled to reject the submission. You do, however, have the choice of appealing a rejection within one month of being informed. In some circumstances, you might need to submit further materials in order to get the subsidy.

Following the end of the initial phase, applicants can apply for the second phase of the startup grant.

Who is eligible for a startup grant?

Individuals are eligible for the startup grant when meeting the prerequisites outlined above. It is therefore unavailable to existing businesses or founders who do not intend to work for themselves full-time.

Additionally, the BA does not grant startup support to those whose benefits are subject to suspensions or other moratoriums (Ruhenstatbestände) under Sections 156 to 159 of the SGB III (Section 93, paragraph 3 of the SGB III). Such suspensions (Sperrzeiten) apply in cases of voluntary resignation, abandonment of employment, refusal of suitable work, or insufficient efforts to secure new employment. Applicants are also disqualified for the subsidy if they receive separate welfare benefits, such as sickness coverage, severance, or continued wage payments. The BA awards the grant exclusively when no suspensions or moratoriums are in effect.

You are likewise ineligible for the subsidy if you received any other forms of emerging venture support in the 24 months preceding the application (Section 93, paragraph 4 of the SGB III). In addition, eligibility ends once entitlement to the standard old-age pension arises at age 68 (Section 93, paragraph 5 of the SGB III).

What are the downsides of the startup grant?

Despite the many positives, there are a few challenges and downsides that founding members need to consider when applying for and using it.

Heavy on the paperwork

The startup grant submission process involves extensive administrative requirements. The BA requests a comprehensive set of documents, including a resumé and, where applicable, proof of authorization or a professional license. Applicants must also submit a detailed business plan with financing information and obtain a formal expert opinion.

The long wait

In certain situations, the startup grant might not suit founders who require immediate capital, as the review and approval process typically takes at least one to two weeks. In some cases, it can take longer still: if the BA initially rejects your application, perhaps due to missing or incomplete documentation, it adds to the overall processing time.

Limited funds and the length of funding

Another downside to this subsidy is that the amount and length of support awarded are limited. These small cash amounts, combined with the six- and nine-month funding periods in the first and second phases, respectively, are not always enough to get a venture up and running properly or to secure a steady income.

No scalability

The startup grant targets founders who aim to establish a small enterprise. It is less well-suited to larger undertakings or rapid expansions, since it allows minimal investments.

Limited target group

Another drawback of the BA’s subsidy is its narrow scope, as the program limits funding to those not working receiving unemployment insurance. Founders who already have separate sources of income are, therefore, ineligible. The same goes for owners who do not intend to be self-employed full-time.

Risk of rejection

When founding members meet the basic requirements for the startup grant, the BA can still reject their application. The subsidy is not a legal entitlement, meaning the BA reviews and approves all submissions at its discretion. While founders can appeal rejections, success is never guaranteed.

What financing options are available to founders in Germany?

There are numerous ways founders in Germany could finance their businesses. Each option has its positives and negatives, which can vary depending on an operation’s size, financial needs, and long-term goals.

Equity

Many founding members cover costs through equity funding, often called bootstrapping, by investing personal savings or seeking support from friends and family. One advantage of this method is that it doesn’t involve any external lenders, so there’s no interest or repayments. The flipside is that it comes with greater personal risk, and the opportunities for expansion are limited.

Bank loans

If you’ve got equity, then you could always go to a bank for a commercial loan. Since financial institutions don’t acquire shares in the organization, founders don’t lose any influence over how they manage operations or what direction the company takes in the long term. Still, access to bank loans is often contingent on a positive credit history and a convincing plan. On top of that, they must submit pages of documentation and can expect to pay interest and regular installments.

Public subsidies

Government-backed development programs offered by organizations such as the Credit Institute for Reconstruction (KfW) or similar public investment bodies are another way to fund your business. These loans tend to come with lower interest rates and longer terms than bank loans. They involve extensive paperwork, and payouts can take several months.

Investor capital

Some turn to external investors, such as venture capitalists or angel investors, for an injection of capital. With this approach, there’s no need to repay the money. Plus, investors could offer expertise and networks. In return, however, founders will have to give up a stake in their company, which can limit their control over the management and development of operations, alongside the strenuous, time-consuming nature of seeking investor capital.

Crowdfunding

With crowdfunding, founders can raise money from a range of supporters via specialized platforms. There’s no need to give away equity stakes, and you could test market acceptance before a full product launch. On the flipside, crowdfunding campaigns require significant marketing and are sometimes unsuccessful. Founding members who don’t reach their funding targets don’t see a single cent.

Prefinancing through Stripe Capital

One innovative approach to corporate support is prefinancing, whereby the founder or founders raise capital based on future sales. Unlike traditional bank loans, this type of financing doesn’t require extensive business plans or collateral.

Stripe Capital offers revenue-based financing that allows founding members to access capital quickly, without the lengthy processes of bank loans or public subsidies. The amount of the advance is calculated based on previous sales figures and revenue forecasts. What’s special about this funding option is its flexible repayment model: instead of monthly installments, businesses pay back a percentage of their daily revenue. That means repayments scale with a company’s earnings—higher revenue means higher repayments, and vice versa.

Unlike the startup grant, which is restricted to a limited target group, prefinancing through Stripe Capital is open to all founders in Germany.

How important is digital documentation in loan decisions?

Digital transaction data is becoming increasingly important for corporate financing. Having access to well-documented monetary records gives you a better chance of acquiring funds to expand your venture, whether from banks or investors.

That’s because reliable transfer data is just as substantial for a business’s day-to-day accounting as it is for loans and financial products. A clear fiscal history helps third parties quickly and reliably assess a company’s creditworthiness. For founders, then, digital documentation increases the likelihood of securing new capital. With Stripe’s modular solutions, you can digitize and automate bookkeeping to give you round-the-clock access to transaction and tax records.