Business loan proposal

Minister Guttenberg wants to use the emergency funds available to ensure that companies which are in good financial health will survive a credit crunch expected in the fourth quarter of this year.

The Christian Social Union politician from Bavaria said that there were concerns that small and medium-sized businesses could face a situation where credit was cut off.

He suggested that, to prevent this from happening, the state-run KfW banking group should make available a universal loan to the commercial banking sector.

Guttenberg said banks needed to be ready to make loan approvals process quick and easy for business customers.

The money is likely to come out of the 100 billion euro “Deutschlandfonds” - a bailout fund created earlier this year in the wake of the global financial crisis.

Government to take over default risk

To further encourage German banks to loosen their purse strings, Guttenberg suggested that in return for relaxing certain lending criteria, the government would assume 90 percent of the risk on business loans, leaving the banks with just ten percent.

So far, despite billions of euros in government liquidity assistance, German banks have been reluctant to let that money flow any further down the economic food-chain to where it's really needed to keep economic activity alive.

As business sales and profits have shrunk with the global recession, the traditional benchmarks, which the banking sector has used in assessing applications, have become harder to meet.

Exporters are in particular need of help.

To assist Germany's hard-hit export sector, banks will be obliged to lend money equal in value to the government loan guarantees. However, Minister Guttenberg stressed that there would be no direct government loans to exporters.

Guttenberg's proposals come just days after Germany's Finance Minister, Social Democrat Peer Steinbrueck, made similar suggestions.

“When the efforts of the banking sector are not resulting in credit flowing to businesses, the state has to use new tools to bring some leverage,” Steinbrueck said.

He also pointed out that the risk of businesses defaulting on loans was low.

On Tuesday, the steering committee of the German business fund, “Wirtschaftsfonds Deutschland”, will meet to discuss the proposal. They also hope to establish a model to protect private lenders against loan default.

ch/Reuters/dpa
Editor: Andreas Illmer