If you don’t have the assets to finance your business with equity, you’ll have to rely on alternative forms of financing. One option is to look for financing from venture capitalists or angel investors who can provide the capital you need but require stakes in your business in return. An alternative for a founder looking to retain full control over their company is a founder loan.

In this article, we discuss the borrowing options available to founders in Germany. This includes founder loans from the Credit Institute for Reconstruction (KfW) and their drawbacks. We also discuss an innovative alternative for business financing and explain how transparent revenue data impacts your access to funding.

What’s in this article?

• What lending options are available to founders in Germany?
  
• What founder loans does the KfW offer?
  
• What are the drawbacks of the KfW’s founder loans?
  
• Prefinancing: An innovative alternative
  
• How does transparent revenue data impact access to funding?
  

What lending options are available to founders in Germany?

Founders in Germany looking to acquire seed capital to finance their business ventures have many different borrowing options. We cover the most important options below.

Founder grants

Founder grants are government-backed subsidies for individuals who want to start a business while unemployed. The grant is awarded by the Federal Employment Agency (BA) and helps founders finance their first months of self-employment. The length and amount of funding provided under the founder grant are limited, since the grant primarily functions as a form of social security.

The grant is awarded in two phases. In phase one, the BA pays out the recipient’s most recent unemployment insurance—plus an additional €300—for a period of six months. In phase two, the BA pays out €300 per month.

To be eligible for a founder grant, founders must be entitled to at least a further 150 days of unemployment insurance when they begin full-time self-employment. In addition, they must provide expert testimony to prove the viability of their business and their qualifications to perform the work.

Applying for the founder grant involves considerable paperwork. Another downside is that founders are not legally entitled to subsidies. The BA reviews all applications at its own discretion and can approve or reject them. The upside of a founder grant is that founders are not required to pay back the money.

Bank loans

Founders in Germany can also take out a bank loan. In return, they have to pay back the money they borrow plus interest over a defined period of time. Before granting a loan, the bank runs a credit check on the founder or founders and assesses the profitability of the business idea. To get a loan, founders need to present a solid financial plan and a convincing concept.

The upside of a bank loan compared to a founder grant is that loans can involve much larger sums of money, and there’s flexibility around their maturity. Founders can also use a bank loan for a variety of different purposes—not just covering their basic living expenses. Plus, unlike a founder grant, founders don’t need to be registered as unemployed to obtain a bank loan.

Government-backed founder loans

The BA’s founder grant is only available to founders who are unemployed, but there are many other public investment bodies that offer government-backed development programs. These programs are often used as support for self-employed individuals to cover capital requirements in the early stages of starting a business.

The most well-known development bank in Germany is the KfW Development Bank. Established in 1948, the KfW has funded thousands of projects around the world on behalf of federal and state governments, including funding businesses in Germany. In 2024, the KfW awarded nearly €113 billion in loans.

The KfW offers founders in Germany a variety of different loans with favorable interest rates, long maturities, and initial payment holidays. Below, we explain some of the most important founder loans available from the KfW.

What founder loans does the KfW offer?

The KfW offers founders in Germany four different founder loans related to founding and succession. Interest rates indicated below are subject to change.

European Recovery Program (ERP) Founder Loan–StartGeld

The ERP Founder Loan–StartGeld (loan number 067) gives founders up to €200,000 in funding for setting up and running a business. Companies that have been in business for more than five years are not eligible. This loan is also not available to businesses with more than 50 employees or annual turnover over €10 million.

The minimum term of the founder loan is two years. The annual borrowing rate for loans with a term of up to 5 years is 3.48%. For loans up to 10 years, it’s 3.84%. Borrowers are not required to make any repayments for the first year—or the first 2 years for 10-year loans—and only have to pay interest. This founder business loan does not require founders to have any seed capital.

ERP Development Loan for Founders and Successors

The ERP Development Loan for Founders and Successors (loan number 077) is for founders, business successors, and young entrepreneurs who have been in business for less than five years. They can receive up to €500,000 under this program. However, the loan cannot cover more than 35% of eligible costs.

The effective annual interest rate is 4.56%. A 10-year loan comes with a 2-year payment holiday and fixed interest for the full term of the loan. A 5-year payment holiday can be granted for 15-year loans, with interest fixed for the first 10 years.

ERP Development Loan for Small and Medium-Sized Enterprises (SMEs)

The ERP Development Loan for SMEs (loan numbers 365 and 366) gives freelancers and SMEs funding of up to €25 million. Businesses can use this loan to make investments in their current operations or to found a new business. The average borrowing rate is between 2.94%–3.62%, depending on the proposal and loan term.

KfW Development Loan for Larger Medium-Sized Enterprises

The KfW Development Loan for Larger Medium-Sized Enterprises (loan numbers 375 and 376) is aimed at larger medium-sized enterprises with annual turnover of no more than €500 million. These enterprises can obtain loans of up to €25 million. However, these loans are intended exclusively for investments, regular expenses, and business succession. They cannot be used to finance a new business.

What are the drawbacks of the KfW’s founder loans?

There are many positives to the KfW’s founder loans. At the same time, there are some downsides to keep in mind.

Principal bank rule

The KfW does not have its own network of branches, so it has to partner with other financial institutions to offer loans. Commercial banks, savings banks, and credit unions are responsible for advising borrowers, reviewing necessary documentation, and paying out funds. However, German financial service providers are not obligated to process KfW loans. Consequently, founders who use principal banks that do not work with KfW loans will have to switch banks.

Administrative workload

Applying for a founder business loan from the KfW requires a lot of paperwork. Founders must describe and document their proposals in detail. For example, new businesses require a comprehensive business plan that outlines features such as business ideas, target groups, planned markets, competitors, and more. Founders have to illustrate how they plan to implement and finance their ideas. They also have to demonstrate which of their personal skills qualify them to make their business ideas happen.

Long wait times

Another downside to KfW founder loans is their comparatively long processing times. The KfW does not accept applications directly. Instead, it outsources them to a financing partner that reviews applications before forwarding them to the KfW. The review process can take a few days to several weeks, depending on which partner reviews the application.

Then, it takes roughly another four weeks for the KfW to process an application. Founders can only sign the loan agreement with their financing partner and access their funds once the KfW approves funding. All together, this process can take several months, which can be particularly problematic for fast-moving digital companies or startup projects with short-term capital requirements.

Application denials

The KfW’s financing partners are under no obligation to approve an application for a founder business loan. If the KfW assumes 80% of the credit risk on an ERP Founder Loan–StartGeld, the financing partner is still responsible for the remaining 20%. This can become an obstacle to funding, especially if the founder or founders don’t have sufficient collateral.

On top of that, traditional banks regularly demand between 12–24 months of financial records to grant a loan. New ventures typically don’t have those kinds of records. Without a valid pool of data, it’s hard to prepare reliable financial forecasts for even a few years in advance. In practice, these factors can result in the financing partner rejecting the loan application.

Prefinancing: An innovative alternative

Equity, investor funds, and classic founder loans are just some of the financing options available to founders in Germany. One innovative alternative is prefinancing. With this method, the founder or founders raise capital based on future sales. In other words, they receive a cash advance based on previous sales figures or revenue forecasts.

Stripe Capital offers revenue-based financing solutions where repayments are also aligned with your incoming payments. Lower earnings mean lower repayments and vice versa. This allows you to retain your financial flexibility and avoid liquidity shortages.

Another advantage is that you will usually receive your loan or business cash advance within one working day of accepting the offer. Unlike traditional loans, there’s no need to fill in application forms or provide collateral. Instead of going through lengthy processes and waiting months for your cash to arrive, Capital allows you to access the funds you need in just a few clicks and use it for your business right away.

How does transparent revenue data impact your access to funding?

Transparent revenue and transaction data are key to obtaining corporate financing. Businesses that neatly document their earnings and can access this documentation digitally have a better chance of obtaining capital from banks and investors. This is because well-maintained financial records are a quick and credible way for lenders to assess a business’s risk profile and creditworthiness. Third parties tend not to invest in businesses that can’t provide reliable figures because their chances of success are ambiguous, and the financial risk is high.

Therefore, entrepreneurs who want to be attractive to lenders should use digital bookkeeping to ensure maximum transparency. Stripe’s modular solutions can help you automate accounting processes and access up-to-date transaction and tax data anytime. This enables you to manage your business processes efficiently and increases your likelihood of quickly acquiring the financing you need.