The tightening grip
A new study published by the Kreditanstalt für Wiederaufbau (KfW) together with the Munich-based economic research institute ifo shows that German banks are increasingly making life difficult for small and medium-sized enterprises. Over four out of ten companies report that obtaining a loan is now nearly impossible. This is the highest number recorded since the study began. Analysts attribute the banks' stricter approach to weaker financial positions and declining credit ratings among businesses.
Laura Lang, a business owner in the orthopedics industry based in Rhineland-Palatinate, is one of many who have faced this issue firsthand. Her company recently needed a major investment—amounting to six figures—for a new production facility. Despite the company's long-standing relationship with its bank, which had lasted for decades, the bank refused to grant the loan unless the business provided a guarantee. Lang decided to withdraw the request and instead funded the project using her company’s own capital.
The cost of money
Loans are not only harder to obtain, they are also becoming more expensive. Interest rates have now surpassed four percent. For companies like Lang’s, this means that major business decisions are increasingly dependent not just on necessity, but also on the business’s ability to cover costs without external financial support. With no additional loans on the horizon, companies are forced to rely more on their own financial resources, which puts them in a precarious position.
The KfW and ifo study highlights a clear trend. More companies are experiencing financial strain, and banks are responding with stricter lending rules. This means higher down payments, longer approval processes, and tighter borrowing limits. The situation is affecting more than just small firms—only 27 percent of large companies held loan discussions in the second quarter of the year. This marks a sharp decline and signals that even the bigger players are being impacted by the current financial climate.
Home-grown challenges
Hans-Jürgen Völz, chief economist at the Federal Association of Medium-Sized Businesses (BVMW), argues that the problem lies not in global economic instability but in domestic issues. High energy costs, increasing regulatory requirements, and rising additional wage costs are all contributing to a difficult business climate. These factors are not only slowing down operations—they are making it increasingly hard for companies to demonstrate creditworthiness to financial institutions.
Völz points out that foreign investment in Germany has also come to a standstill. Few new production facilities are being built. Without new projects and investment, companies are left with only minor and essential investments, such as maintenance and replacement. This pattern of minimal growth is not enough to stimulate a stronger economy. The lack of new development is especially concerning, as it means the country is not creating the fresh momentum needed to revive economic expansion.
Völz warns that the long-term consequence of this trend is a continued stagnation in economic growth. Germany has not experienced any significant economic expansion in the past seven years. Instead, the country has remained in a state of near stagnation. The absence of real growth and new investment is limiting the potential for future development and making it increasingly difficult for companies to compete on the global stage.
The situation is a reflection of broader structural issues in the German business environment. With fewer companies willing or able to invest, and even those who are investing only doing so at the most basic level, the country's economic engine is running on low power. This is a dangerous trend that could further erode the confidence of both domestic and international investors in the long run.