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Small-scale financing for SMEs in Western

Small-scale financing for SMEs in Mecklenburg Western Pomerania1

Objective

Extend micro lending: Develop micro-lending facilities and instruments and accompany them with appropriate coaching and skills development. Simplify and streamline regulations and procedures in existing support programmes: make regulations and conditions for existing and new enterprise support programmes more transparent and simplify procedures.

Description of the approach (aims, delivery, budget etc)

Microcredit programmes. Mecklenburg-Western Pomerania has offered a supplement to the financial support from the Federal Agency for Employment for start-ups from unemployment since 2004. Microlending was introduced by the Ministry for Employment, Construction and State Development in order to address shortages in financing for company start-ups resulting from the difference, or the gap, between what is available through the Federal Agency for Employment (bridging money and start money) and the real financing needs of businesses. This supplement seeks to address the latter in accordance with the business plan. This involves an analysis of the financing needs by the Society for Structure and Job Market Development (Gesellschaft für Struktur- und Arbeitsmarktentwicklung - GSA) on behalf of the above-named Ministry. The application for it must be made before the start-up and lasts a maximum of five years, with a one year repayment break, at an interest rate of 5%. Aside from a living allowance, these programmes offer company start-ups seminars, vouchers for training on the basic questions of start-ups and, upon completion, a training certificate. Microcredit financing is offered which is calculated according to the financial gaps that arise between all of the available private means (such as existing private capital as well as the available financial support of the Federal Agency for Employment in the form of bridging money) and the need for financing according to the business plan. This shortage financing is issued directly and without the mediation of Hausbanken. Lending fund. A further example of the way in which Mecklenburg-Western Pomerania supplements those funds from the federal KfW is a lending fund. This fund combines the resources of the KfW and EU Structural Funds resources (mainly the European Regional Development Fund), and can be used to finance investments and operating resources in enterprises with weak private capital, especially when the acquisition of additional financial resources is needed to enable customer order to be fulfilled. Companies who are weak in equity, that is, with insufficient liquid assets, often have difficulties in securing advance financing. The financing of operating resources is thus a suitable target for lending resources. This promotion is supplied by the Mecklenburg-Western State Promotional Institute. At the time of its foundation at the end of the 1990s, the lending fund initially only focused upon investment promotion, until, approximately eighteen months ago, the financing of operating resources was also added. A maximum of EUR 100 000 can be borrowed, with two years before repayment must start. The term of a loan is 10 years, with an interest rate of 6.7% in the case of investment promotion, or, 8 years in the case of operating resources financing with an interest rate of 9.7%.

Contact details and website for further information

Mecklenburg-Western Pomeranian State Promotional Institute, Website: http://www.lfi-mv.de/ie/home/home.html

1 Source: Discussion Paper “Entrepreneurship in the Districts in and Parchim in Mecklenburg-Western Pomerania”, OECD LEED Programme, October 2006. Adapted in 2007 by Philippe Krott and Dario Montero, trainees at the OECD LEED Trento Centre for Local Development.

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