Will COVID-19 aid only be available to companies that were healthy and profitable before the crisis? Uwe Köstens, managing partner at enomyc, sees the danger that only those companies that are healthy, according to the KfW’s terms of allocation and EU regulations, will be able to benefit from privileged financial programs. How does he see the current situation? How does he see the future, and what has the current situation prompted him to do? A commentary. 

Coronavirus Compact Report


The view into the Hamburg city center is spooky 
Across the Neuer Wall or into the arterial roads, everything holds its breath. If you drive out of the city center to the north, along streets full of small shops and businesses, the same is visible there: standstill.

The fact that shops have to be closed for several weeks by official order – this has never happened before. It is a drama: a state of affairs that has never been seen before, even by historical standards. On the other hand, September 11 or the 2008 financial crisis were much less serious in terms of their scope and extent. At best, the world economic crisis of 1929 comes close to the current drama. But even this did not come from such a height and with such a speed as the corona crisis does now.

The impact is still to come
It’s like an elevator from the 100th floor falling unchecked. And we’re not even at impact yet. We are currently talking about four weeks of crisis in Germany and in Europe. We are still in free fall. In my view, the impact is yet to come. The current lockdown has triggered a dramatic economic downturn, whose extent will become apparent in the aftermath when the economy successively starts up again. Then it will become apparent what all the sales and activities have failed to materialize. The costs have continued to run proportionately despite short-time-work compensation and what was saved on rent. All companies will have to restart at a much lower level. 

If the lockdown is completely from May at the latest, which is the working hypothesis, and we return to normality as quickly as possible, we can still look forward to around six weeks of standstill. For many companies this is already far too long. The corona crisis will cut a deep swath through the global economy and corporate balance sheets.

All companies are in difficulty – only at different levels 

Even strong, flourishing, prospering companies have a big problem. They too are now losing up to 80 or 90 percent of their turnover. Even for these originally healthy companies, this represents a threatening challenge. I ask myself: How do companies with medium or poor credit ratings fare?

We are constantly monitoring the award criteria for the individual aid programs: Have the conditions changed? Were there any relaxations? Has the duration of the loans in question been extended? Is a continuation forecast still needed?

I do not want to rule out the possibility that the KfW criteria will be further adjusted in the near future – especially since it now turns out that the privileged financial resources will only be made available to healthy companies and that this is therefore a selective or overly selective approach. However, if the award criteria were to be adjusted to such an extent that candidates with borderline creditworthiness would also benefit from such financial resources, we would have a complete paradigm shift.

What triggers the current situation in me as a management consultant? 

I fear that the companies that had problems before the corona crisis are now in great danger of going under. I see the danger that only those companies that are healthy, in accordance with KfW’s conditions for awarding contracts and EU regulations, will benefit from the privileged financing programs.

We’re restructurers. At enomyc, we have been dealing with crises on a daily basis for around 17 years. Time and again, we have to face very big challenges in order to ensure the continued existence of our clients. In this respect, the task we are facing is not new. What drives us now more than ever is to keep companies as safe as possible and above water against the background of a dramatically deteriorating global economy and to make them fit for the future.

What do companies need now?

For many years – now even more so – I have been convinced that companies need a clear view of things. Without truth and clarity, there is only prayer and hope. In contrast, the creation of a real crisis scenario, a worst-case scenario, will bring clarity. The premises for planning and deriving the financial resources that are now needed must be set realistically. This is the start of a consistent and successful management of the crisis.

What I keep finding is a clear problem of insight: "Is my business model still viable? Is it competitive?" Many companies in crisis find it extremely difficult to honestly question their business model anyway, and now, in the current situation in which the framework conditions are changing collectively and at lightning speed, this challenge is far more complex.

The confusing thing – the thing that scares companies now – is that there are no empirical values, no fixed points to hold on to and to secure themselves to. The current situation is unprecedented, like an equation with a thousand unknowns. That makes it difficult, even for the banks.

Privileged or not? The banks must decide and choose

Due to the current KfW lending conditions, banks are forced to choose, to determine: Which companies are the privileged, meaning those worthy of receiving financing? Which are not? They are torn between the desire to avert bankruptcies and the caution not to grant loans whose repayment is doubtful. After all, the current 10 to 20 percent residual risk, which would remain with the house bank, could accumulate dramatically!

In my opinion, the banks are doing a lot to help healthy companies as quickly as possible – even though the federal government is currently only providing guarantees between 80 to 90 percent. It is too little, as the banking and business associations find. They demand higher state liability.

Put together in a hurry: the measures taken by the government

No experience of such a crisis – and certainly not at its speed: the government is also severely challenged. It only had a few days to draw up a plan of action to cushion an entire economy! And this plan is repeatedly overtaken by reality. 

The government’s aid measures to date are now to be welcomed across the board. However, what we have noticed in our work as consultants is that the short-term implementation of these programs has created various questions and uncertainties that many companies are now facing.

“Do I belong among those eligible to receive privileged financing, yes or no? Does the requested loan amount formally correspond to the conditions, yes or no?”

It is now becoming clear that the government’s current plan is not yet enough to provide German small- and medium-sized enterprises with loans nationwide and on short notice. Probably the 100 percent coverage and guarantee by the state would be the better option. Then at least the banks would not run the risk of getting stuck on the current 10 to 20 percent of residual risk, and a credit backlog would be prevented with fewer good credit ratings.

Beware of false statements!

The financial resources currently made available to companies are subsidies. With subsidies, the transition to subsidy fraud should not be underestimated; to cheat here or work inaccurately would be fatal! If companies make false statements and obtain financial resources without justification, they run the risk of being accused of subsidy fraud. If banks in turn process the applications incorrectly, they run the risk of losing the 80 or 90 percent indemnity from the KfW. This, too, can lead to considerable losses in the individual houses.

Therefore, it is extremely important that KfW applications are preceded by an important and serious examination. An investigation based solely on intuition and general estimations must be ruled out at all costs. The financing requirement must be determined cleanly and correctly, and the business model must be presented in such a way that it can be processed quickly by the main bank and KfW. In the best case, the applications can be assessed positively.

A Corona Compact expert opinion is needed

A standard for companies and a consistent, self-contained product that reflects what companies now so urgently need: fast access to the financial resources they require. That’s why we developed the Corona Compact Report. 

In developing this, we have clearly oriented ourselves according to KfW’s conditions for awarding contracts and the EU legal requirements for companies and have contributed our many years of expertise as corporate and restructuring consultants. The aim of this report is to create a standardized and transparent basis that can be realized, as quickly as possible, based on which rapid processing or approval by the banks is possible.

Now, in addition to the speed with which it must be presented, quality and accuracy are what count. From a sporting point of view, the current process looks like a biathlon: despite the high speed, precision work is essential. The speed that is now so sorely needed must under no circumstances lead to mistakes. Companies and even banks could miss the target.

Which funds can companies apply for? What are they entitled to?
We are able to support companies and banks in the shortest possible time to check the KfW criteria for their correctness and beyond.

Coronavirus Compact Report

What have we learned?
We have to recap. We have to focus on keeping a clear and truthful view – of ourselves, of our companies, of our orientation, and also of the opportunities we will realize when we restart.

On the one hand, I assume that an increased number of insolvencies will now occur. It will clearly be a matter of survival for many companies. Looking to the future, however, I also believe that many companies will make a virtue out of their current difficulties. That they will reposition themselves and tackle issues that they have shied away from until now. Take digitalization:

For many companies, digitally upgrading their business model is no longer a nice-to-have. It has become a must-have. We are currently observing that companies that, for example, have dealt with the topic of e-commerce in good time have set themselves up in a technically clever way and are more likely to be able to meet the current challenges of the market when the need arises (i.e., in the current situation).

What are the questions that concern you? Which topics would you like to explore in a joint discussion? Talk to us. We are at your service.


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