Equity for the KfW Start-up Loan

How much equity you really need for your start-up financing – and why “not required” does not mean “not needed”

Category: Start-up financing & funding   |   Author: Daniel Schäfer   |   Reading time: 6 min.

Do you want to apply for €100,000 or €200,000 in start-up capital for your business? Then almost always the same question arises immediately: Do I actually need my own capital to apply? The KfW website initially sounds reassuring – it states that equity is not required for the ERP-Gründerkredit StartGeld. In practice, things are different.

In this article, I will show you why you still need equity, how much is realistic – and how you can noticeably increase your chances of approval with your house bank and KfW.

Contents

1. The myth: “No equity required”

2. Why you need a financing partner (your main bank)

3. How much equity you really need for your business start-up

4. Approval probability: What happens without equity?

5. High-risk sectors: When 20% equity is not enough

6. How to systematically build up your equity

7. Conclusion and next steps

The myth: “No equity required”

If you visit the official KfW website, you will quickly find the note: Equity is not required. That sounds good – but in practice, it is only half the truth.

As a founder, you cannot apply directly to KfW for KfW StartGeld or the ERP start-up loan. The application always goes through a financing partner – and this is exactly where the real issue of the equity ratio begins.

Important: Many founders rely on the wording of the funding conditions and are later surprised when their main bank rejects their application. The solution is not a better application, but a realistic equity plan.

Why you need a financing partner (your main bank)

Your financing partner is usually your current main bank or a competitor. This bank takes on around 20% of the risk, because KfW itself only provides an 80% release from liability.

For your main bank, this means specifically: If your loan is not repaid, for a financing amount of €200,000, the bank bears a loss risk of around €40,000. Every bank wants to minimise this risk – and that is precisely why, as a founder, you are required to provide an equity contribution.

Note: No financing partner, no KfW application – and without equity, hardly any financing partner.

How much equity you really need for your business start-up

As a general rule of thumb, you should plan for 10 to 20% equity of your total capital requirement. For a capital requirement of €100,000 to €200,000, this means at least €10,000 to €20,000 – preferably more.

• 10–20% equity: Standard benchmark for most sectors classified as green with a normal risk profile.
• 30% equity: Common in sectors considered higher risk by banks, for example, gastronomy in Berlin.
• 50% equity: Required by certain institutions such as Deutsche Bank for particularly high-risk ventures.
• 0% equity: Theoretically possible, but with a significantly reduced probability of approval.

Approval probability: What happens without equity?

Experience from over 4,000 supported start-ups since 2002 shows: While you can formally submit an application to your main bank and KfW without any equity, your probability of approval is then at most around 50%.

The risk of failing at the main bank stage is correspondingly high. And if the main bank does not support your application, you will not even be able to apply to KfW – the entire funding programme is then blocked for you.

High-risk sectors: When 20% equity is not enough

In certain sectors, the required equity ratio is significantly higher than 10 to 20%, because the risk of default is considered greater by the main bank. A classic example: start-ups in the gastronomy sector in Berlin, such as restaurants or cafés.

Here, banks often require at least 30% equity, and some institutions such as Deutsche Bank even require 50%. Only in this way does the bank bear its remaining 20% share of the risk to an extent that justifies an application to KfW at all.

The crucial point: If you want to be on the safe side, enter the financing with 50% equity. However, for most industries rated green, 10 to 20% is usually sufficient.

How to systematically build up your equity

A common mistake: founders immediately invest their available funds in initial machinery, equipment or fittings – and then no longer have a bank statement that the bank will accept as proof of equity.

• Save up rather than invest in advance: Build up your equity in a targeted way before making your first purchases.
• Secure bank statements: Keep complete records that your bank will accept as proof of equity.
• Establish a company: If you lack equity, selling shares can be a solution.
• Check private sources: Involve family, friends or your own savings in a targeted and documented manner.

The key task for you as a founder is to build up 10 to 20% equity. You can then leverage this equity through the KfW programme or a suitable state funding programme.

Conclusion: It is not the programme that is decisive – but your equity.

Although ‘No equity required’ is stated in the KfW conditions, in practice it is your local bank that decides whether and how your application even reaches KfW. Those who bring 10 to 20% equity have a much better chance. If you are starting a business in a high-risk sector, you should plan for 30 to 50%.

Once your equity is in place, you can move on to your financing plan and business plan. If you are doing this for the first time, it usually takes significantly longer – and you often make 10 to 30 mistakes, which in the worst case can cost you the entire financing. This is exactly where we support you as part of the solution.

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About X-Group

Belief in your potential and a focus on the things that truly move you forward are top priorities at X-Group GmbH in Berlin. For over 20 years, we have supported founders from the initial idea to exit – with the right financing strategy at the right time. Certified nationwide for advisory funding programmes: 50 to 100% subsidy on consulting costs is possible.