Is Germany doing enough to ensure small businesses survive the coronavirus crisis?

Is Germany doing enough to ensure small businesses survive the coronavirus crisis?
A waiter serving guests at the Vielmeer restaurant in Kühlungsborn, Mecklenburg-Western Pomerania on May 9th 2020. Photo: DPA
Small business owners and the self-employed in Germany are being hit hard by the effects of the coronavirus shutdown. The German government put together an emergency aid package to help them weather the crisis. How effective is it?

Friday is usually one of the busiest nights for Das Gift, a bar in Berlin’s Neukölln district.

But on a sunny evening in mid-May, bottles of craft beer and packets of crisps nearing their sell-by date line the bar, waiting to be picked up by customers for takeaway.  

“We thought we’d sell them off because we just don’t know when we’ll reopen,” says owner Rachel Burns sitting in the empty bar under a blackboard advertising breakfast and a pub quiz.

Das Gift is one of the venues in Germany which have been lying empty since mid-March when they were ordered to shut down as the coronavirus pandemic took hold. Berlin has now given bars the green light to open on June 3rd, with strict conditions in place, but deep concerns about the future remain.

“It was slow motion, a really strange feeling,” says Burns. Das Gift decided to close on Friday March 13th as the scale of the crisis was becoming clear. Police in Berlin forcibly shut down other bars, pubs and clubs in the capital that weekend. 

With no money coming in, businesses and the self-employed feared the worst. How would they survive until the crisis was over? When would it even end?

READ ALSO: 'We thought we'd be closed for a month': How Berlin bars are surviving the coronavirus crisis

'We're taking action'

Germany was one of the first countries in Europe to set up large aid programmes for businesses affected by the coronavirus pandemic, which is set to push the country into the “worst recession” in post-war history, according to Economy Minister Peter Altmaier.

The German government put together a €600 billion bailout fund for large companies, a state-backed scheme offering quick loans of up to €500,000 to small and medium-sized enterprises, and a €50 billion hardship fund to give grants to small businesses, the self-employed and freelancers. Crucially these hand outs don’t need to be paid back.

Crucially these hand outs don’t need to be paid back, a point stressed at the time by Finance Minister Olaf Scholz.

“We are providing grants, not loans,” he said. “Nothing has to be paid back. In this way, we’re taking action to reach the people who urgently need our support right now.”

As Germany is a federal country, individual states also set up their own schemes, sometimes with differing criteria and conditions.

Tables at a restaurant in Stuttgart taped off on April 7th 2020, during the coronavirus shutdown. Photo: DPA

Das Gift is one of more than 200,000 small businesses and freelancers in Berlin to receive cash as part of the state and federal governments’ Corona Soforthilfe II (emergency aid) programme to help support people financially during the pandemic. 

According to the latest figures given to The Local at the end of May, Investitionsbank Berlin (IBB), which processes applications and allocates the money, has paid out €1.183 billion to about 161,700 self-employed workers and freelancers. 

'1,000 visits a second to the website'

Small businesses with up to five employees have accounted for about 35,000 applications, with around €392 million paid out. About 12,400 firms with six to 10 employees have received around €181 million, while 17,000 applicants were not granted any funding.

“In total we’ve given out grants amounting to approximately €1.8 billion so far,” Claudia Davies of IBB told The Local. 

As Berlin began closing down public life to slow the spread of coronavirus, the state wanted to get money to people who needed it quickly. Cash was transferred to successful applicant’s bank accounts in just one or two days in some cases.

Up until the end of May applicants who have up to five employees including freelancers could get up to €9,000, while small businesses with up to 10 employees were allowed up to €15,000. 

Those applying have to meet certain conditions such as being in economic difficulties as a result of the pandemic, and be registered with a German tax office. 

Davies said the Berlin Senate wanted to make it as easy as possible to support, in particular, the capital’s sprawling hospitality and nightlife scene, including cafes, restaurants, bars and clubs so they can stay afloat through the crisis. 

“Berlin’s economical infrastructure is different from the rest of Germany,” said Davies. “Berlin has many small businesses and is characterized by sectors such as tourism, gastronomy, hotels, trade fairs and events, cultural businesses and business-related services. 

“That’s why this crisis is especially difficult for Berlin’s economy and it was so important to act quickly.”

But for those hard-up small business owners and freelancers who desperately needed the cash it wasn’t that simple. 

There were technical difficulties when the website went live at the end of March, not least because of the number of business owners and freelancers seeking help.

When the application process was launched online, IBB reported around 1,000 visits per second on its website, compared to 1,000 visits per day usually. 

Burns from Das Gift bar describes the application process as “highly stressful” but when she eventually managed to submit the form she said the process was “smooth”. 

“Two days later I had the money in my account,” she says.  

'€14,000 grant'

Rachel Burns in Das Gift. Photo: Rachel Loxton

“From that point of view; the speed of it was amazing.” The bar owner received a taxable €14,000 grant which has to be used for business operational costs, such as rent and bills.

Staff at the bar were also able to access help via the Kurzarbeitergeld scheme, which sees the German government pay 60 percent of salaries.

So how did Berlin do it?

The capital’s Senate decided to introduce grants earlier than the federal government – and there were different rules in place for these payments. Both federal and state grants could be applied for if needed. 

IBB opened applications for one-off grants of €5,000 from the state of Berlin from March 27th.

Self-employed people, freelancers and small businesses hit by the coronavirus shutdown could apply for this grant and use the money for costs, such as payment for lost income.

However, from April 6th onwards, the federal government grant system came into place. From that point, those who got cash were allowed to use it only for specific business operating costs laid out in the application form, such as commercial rents. 

“The idea behind the grant was: we’ll pay you now because you really need cash right now and we’ll deal with it later,” said Kathleen Parker of Red Tape Translation, who received a grant from the Berlin state, and is also helping her clients apply for it. 

“I really think that under the circumstances they did the absolute best they could,” said Parker. “Generally I’m very happy and grateful.”

‘Digital, fast and unbureaucratic’ – words not normally associated with Germany – was how Bastien Allibert, editor of Settle in Berlin, described the grant process.

“The scale with which this support mechanism was conceived and implemented is simply unheard of, and a far cry from what everyone would expect from German bureaucracy,” said Allibert, who also conducted a survey, asking more than 100 freelancers what they thought of the process. 

It found 71.6 percent of applicants received funds in less than two business days, while around 44.2 percent said they had technical problems. 

Unclear rules and changing goalposts

There has been a lot of confusion about what the rules regarding these pay outs are.

Parker from Red Tape Translation says Berlin’s message at the beginning was that people could take their time to apply, there was plenty of money to go around and they could use the grants to cover their wages. 

“And that was true but then the conditions changed and the state money ran out,” said Parker. “That was a huge problem for so many people because they assumed they could use it to pay themselves and then all of a sudden they couldn’t.”

Then there were the freelancers who do not fit the requirements for emergency aid.

They are now being encouraged to ask for basic social security (Gundsicherung) at the Bundesagentur für Arbeit (Job Centre). Rules for claiming Arbeitslosengeld II (ALG II also known as Hartz IV) have been relaxed to make it slightly easier to apply. But the process is still “complex” according to Parker.

Berlin-based Carmen Weigel, who runs a sustainable modelling agency and works as a hair and make-up artist, applied for the grant after the conditions had changed and therefore received funding from the federal government rather than the state. 

“I waited two weeks – I regret that because they changed the rules,” said the 29-year-old.

“For me everything is a little bit murky, it’s also unclear what business costs are covered.”

However, Weigel, who will use the grant to keep her business afloat, while she is unable to operate as normal, says the important thing is to keep a note of everything. 

“I think as long as it can be explained as a business expense it will be okay,” she said. 

A shop in Berlin with a 'closed' sign in March 2020 during the shutdown. Photo: DPA

Experts say the fact that people who received a grant don't have to pay it back is crucial, but it doesn't mean everything is rosy.

Claudia Engfeld of IHK Berlin (Chamber of Commerce), told The Local: “Funding instead of loans is helping businesses to survive the crisis.”

But she said the Chamber of Commerce has found nearly half of the businesses in the capital fear they will not make it through.

“It all depends on how fast we´ll get back to a new kind normality,” she said. “The current corona-restrictions surely are necessary but as a consequence the cost-income ratio, for example in restaurants and hotels, is disastrous.

“It also depends a great deal on the return of national and international tourists.  And probably most important of all: There must not be second lockdown. That would simply be a catastrophe and for many businesses, a death sentence.”

What about Germany’s other states?

Throughout the crisis, Germany’s 16 federal states have done things – on the whole – their own way. And it’s been similar when it comes to financial support. Depending on where you live in Germany, the grants and the conditions can be different.

In Brandenburg, neighbouring state of Berlin, a language school owner told the Local she felt frustrated at the process and how different it appeared to the capital. 

“Berlin was very generous and very fast to give up money; in Brandenburg they started off pretty fast putting application forms online but the process screeched to a halt,” said the business owner who asked not to be named. 

“They made several changes to the regulations on who qualifies for it. A lot of these changes were not communicated to the people who applied.”

Although she has organised some online teaching, the language school owner said she was concerned about the long-term future. “The worst of times is what we’re being told we’re headed for so I can’t imagine a rosy future,” she said.

“So of course I’m worried. I don’t know how to plan my future and my business future. I can continue on a day to day basis but I really don’t know what the economy holds in store for me or people like me.”

Jolyon Jamieson, 68, in Breisach, Baden Württemberg, who works as a tour guide in the Black Forest, said it was simple to apply for emergency aid with the help of a tax adviser. He received the amount he would earn in three months.

In Bad Reichenhall, in Southern Bavaria, Phillie Hall, 53, who runs a business development consultancy firm, was given about €650 from the ‘Soforthilfe’ grant fund which helped cover payment due to her company. 

Hall described the process as “easy” but said she sent more than what was requested, including copies of bank statements to show previous payments, plus a copy of an unpaid invoice. 

“I received a letter by email from the Bavarian government, seven days later, informing me that they would indeed settle the invoice,” she said. “Within 10 days of the application the settlement was credited to my bank account. I know I was extremely fortunate as many companies have not even received a reply.”

In Munich Adegboyega Adekunle, 45, said he was struggling to make ends meet but had not received a grant yet after applying four weeks ago. “I lost all my clients as a self employed person working in cleaning. I want to access the emergency grants to support myself in a positive way.”

The Bavarian State Ministry for Economy, Rural Development and Energy told The Local that around 300,000 applicants for emergency aid had been submitted so far in the southern state. 

As of early May, some 225,000 applications had been approved and a total of €1.3 billion in emergency aid had been paid out. About 32,000 applications did not receive funding. 

In Germany’s most populous state of North Rhine-Westphalia, emergency aid worth €4.16 billion had been paid out as of May 11th, with more than 394,500 payments going out to freelancers, small businesses and mid-size businesses (up to 50 employees).

Around 14,970 applications submitted were rejected.

Sebastian Matheyka measures the distance between the tables in front of the “Weinstube am Römer” in Frankfurt am Main before restaurants opened on May 15th 2020. Photo: DPA

How is the process regulated?

There’s already evidence that scammers have been trying to hijack the aid programme.

In one instance, the government of North Rhine-Westphalia was forced to suspend its aid programme for a week after discovering that criminals were exploiting it to divert hundreds of thousands of euros into their own pockets.

With huge sums of money being released quickly, how do states and the government ensure that the cash is going to the right people, and are there checks in place?

German authorities have vowed to continue to crack down on fraud related to the grants.

“We implemented automated security checks and test routines into our application process,” Davies from IBB Berlin said. She also said they were also working with commercial banks on money laundering audits. 

They are also relying on people to take personal responsibility. 

“Every recipient of the grants must check whether he or she is in an economic situation threatening his or her existence as a result of the corona crisis,” said Davies. “If that’s not the case, the money must be paid back. So the grants will only need to be paid back if they were obtained wrongfully.”

A spokeswoman from the Berlin Senate said that up until April 22nd, applicants who believed they wrongly received money had made 2,500 reverse transfers back to IBB amounting to €17 million.

The conditions on checks may differ slightly throughout Germany, although any grant received has to be declared in recipients’ 2020 tax returns.

As well as random inspections and checks, a spokesman from North Rhine-Westphalia state government said the region had decided to initially pay out the emergency aid in full and, three months after approval, applicants have to return any emergency aid that is not needed.

In Bavaria, a spokesman for the state ministry for the economy, rural development and energy said various security measures were in place in the application procedure.

The spokesperson told The Local that that every fraud case that comes to light “will be reported and prosecuted”.

What happens next?

With little or zero custom, businesses are facing massive difficulties, with some on the brink of collapse. The cash injection is meant to help them weather the crisis.  

At Das Gift in Berlin, Rachel Burns is worried about the emergency aid running out. Even when bars can reopen they will have to operate with restrictions, such as social distancing measures which will mean caps on the number of people allowed in the venue and less sales.

Burns hopes there could be more support in the form of a rent freeze or rent control for businesses that will continue to struggle during the crisis. 

A demonstration in Hamburg by bar owners calling for more support from the government on May 28th 2020. Photo: DPA

“I’m really now getting low on money, it’s just a cash flow issue,” she says.  

Despite fears about the future, Germany’s quick action is undoubtedly helping secure the livelihoods of small businesses and freelancers, at least for now. 

The federal government and states are also announcing additional help packages. But it's hard for anyone to predict the future of a pandemic.

“It depends on the corona-development not only in Berlin or Germany, but worldwide to see if the measures taken so far are sufficient,” said Claudia Engfield from the Berlin Chamber of Commerce. “This is a crisis like nothing before so there's no masterplan you can just implement.”

“I think people in Germany are in a really good position,” said small business owner Carmen Weigel. 

But she, like others, is desperate to get back to some kind of normality. 

“I don’t want to get to the point when I’m relying on the state or Germany in general,” said Weigel. “I don’t like not working. We’re not just sitting here waiting for handouts from the government. We all want to get back to work and do what we love.”

Confronting Coronavirus: This article is part of a new series of articles in which The Local's journalists across Europe are taking an in-depth look at the responses to different parts of the crisis in different countries; what's worked, what hasn't, and why.
 
This article has been supported by the Solutions Journalism Network, a nonprofit organisation dedicated to rigorous and compelling reporting about responses to social problems.
 
The SJN has given The Local a grant to explore how different countries are confronting the various affects of the coronavirus crisis and the successes and failures of each approach.
 
 
 

Member comments

Become a Member to leave a comment.Or login here.
Privacy