The duration of the economic restrictions is decisive for the German Mittelstand

As in the UK, significant parts of small and medium-sized enterprises (SMEs) in Germany are affected by the corona virus pandemic. In this difficult economic situation, the Federal Government in Germany has sent a very positive signal with its comprehensive support measures targeted not only at large corporations, but also at medium-sized, small and micro enterprises as well as at the solo self-employed. Measures include, e.g., short-time work, instant financial grants, tax deferrals, large-scale credit assistance and the temporary suspension of the obligation to file for insolvency.

Nevertheless, it is currently very difficult to estimate how long the crisis caused by the coronavirus pandemic will last. Therefore, IfM researchers have elaborated two different temporal crisis scenarios for the German Mittelstand in order to assess the economic consequences for owner-managed SMEs and the solo self-employed.

Until the outbreak of the Covid 19 pandemic in Germany in early March, the equity ratio of most SMEs was higher than at the beginning of the financial crisis in 2008/2009, thanks to the good profit situation in recent years: in 2017, it amounted to 29% and was almost at par with the equity ratio of large enterprises (32%). Also the average equity ratio of micro enterprises was similar to those of large companies in Germany.

However, the share of micro enterprises that do not show any equity capital on their balance sheet is much higher compared to larger enterprises. For example, approx. one in four enterprises with an annual turnover between EUR 17,500 and EUR 1 million does not have any equity capital. This holds for approx. 770,000 businesses. The danger of liquidation is currently much higher for them than for larger companies. As a consequence, out of the entirety of approx. 340,000 retail businesses with annual sales between EUR 17,500 and EUR 1 million, around 110,000 must be regarded as potentially at risk.

The measures which the German Federal Government has initiated in the last few days, offer employers comprehensive relief for the time being (for these and other economic measures introduced by the German Federal Government see https://www.bmwi.de/Redaktion/EN/Downloads/a/a-protective-shield-for-employees-and-companies.pdf?__blob=publicationFile&v=3). Moreover, state governments have followed the federal package, offering their own crisis relief packages.

The measures taken so far are likely to cushion the greatest crisis effects in the short term for entrepreneurs and SMEs of various sizes. In some sectors, lost sales can be made up for to a large extent once the crisis has subsided, but in others, e.g. in the catering trade, they cannot. We therefore recommend that the government should examine further measures required for specific sectors, depending on how strongly respective sectors are affected by the crisis.

In the longer term, entrepreneurs and SMEs will require further support, depending on their age (start-up, existing businesses, business succession) and their level of integration into the international division of labour and value chains.

Friederike Welter (Institut für Mittelstandsforschung (IfM) Bonn/University of Siegen), Germany

Prof. Dr. Friederike Welter is head of the Institut für Mittelstandsforschung (IfM) Bonn, a policy-oriented independent research institute on small business and entrepreneurship issues (www.ifm-bonn.org). She also holds a professorship at the University of Siegen. Friederike Welter has broad experiences in applied and policy-related research on entrepreneurship and small business, much of it in an international context. She is a member of several policy-related advisory boards for federal and state ministries and for international organisations.