Investments are very important in every company; they serve to expand, modernize or maintain the company. Start-ups need to invest to build their business. Investments are associated with high expenditures, and the available funds are not always sufficient. In order to make the investments, companies can take out a loan, if various conditions are met, investment subsidies are possible.
Definition of investment support
According to DICTIONARYFORALL.COM, investment support is investment aid as state financial support for commercial investments. The investment promotion is part of the business promotion. As a rule, investment support is operated as a specific support, with different types being distinguished:
- Sectoral investment promotion to encourage investments by companies in certain branches of the economy
- Regional investment promotion to encourage investments in certain regions
- Investment promotion within the framework of SME promotion, especially for small and medium-sized companies
- Favoring certain types of investment, for example for research and development or environmental protection.
Investment promotion instruments
Various instruments are used to promote investment. Tax incentives are granted in the form of special depreciation for certain investment categories such as research and development or environmental protection. In the new federal states, such special depreciation applies to all investments for a limited period of time. Investment allowances serve as tax incentives as a reduction in the tax assessment base and investment premiums as a deduction from the tax liability. However, such instruments are not practiced in the Federal Republic of Germany. The investment support can also be granted in the form of direct financial aid, which is paid as investment grants or investment grants. Investment grants are tax-free for the beneficiary companies, while investment grants are taxable. Investment can also be promoted through low-interest, long-term investment loans granted by KfW or the state’s own business development institutes. Such loans have longer terms than commercial bank loans, the term is often ten or more years. The conditions for such investments are favorable, the borrowers can benefit from favorable fixed interest rates and usually make an early repayment free of charge. Investment can also be promoted through public guarantees, which enable companies to obtain debt financing from banks if sufficient standard bank loan collateral cannot be provided or if there are increased risks for the investment project.
Application for investment funding
The investment support that companies can take advantage of depends on the federal state and the laws that apply there. You can apply for investment funding from KfW, but also from Landesbanken or certain promotional banks. The house bank principle applies to the application, which means that funding cannot be applied for directly from KfW or a promotional bank, but must be applied for via the company’s house bank. In Bavaria, companies can apply for investment funding from the district government in whose regional area of responsibility the investment is to be made. When submitting the application, the full project costs must be shown, this also applies to costs that are not eligible for funding. In most cases, 20 to 25 percent of the project volume has to be used from your own resources to finance the investment. When submitting the application, the house bank must confirm the existence of the specified liquid funds.
Examples of investment support
In order to improve the regional economic structure in Lower Saxony, the N-Bank in Hanover promotes investments in individual companies, for example to set up business premises, to expand existing business premises or to diversify production within a business premises. Investments are also funded for the takeover of a closed plant. In Berlin, investments by individual companies are promoted in the start-up phase, in the growth phase and in the stabilization phase. The Investitionsbank Berlin has a wide range of promotional offers for companies; various investment grants have been guaranteed for real estate financing. The SME initiative Energiewende offers various funding programs, for example “Energy-efficient and climate-friendly production processes”, “Heating with renewable energies” or “Investment grants for highly efficient cross-sectional technologies”. The Agency for Economic Development Cuxhaven funded various investments in the district of Cuxhaven from 2007 to 2013 for small and medium-sized companies (SMEs ) a special funding program was offered. The Cuxhaven / Nordholz location offered attractive conditions for investment funding. In the administrative district of Arnsberg in North Rhine-Westphalia, the local transport association in Westphalia-Lippe received funding to improve the infrastructure.