Starting a new business is a grind. It takes time and energy to get moving. And yes, it usually takes some money too. Freelancers and small business start-ups know this struggle, but there are ways to overcome it.
In the early stages of planning a self-employed business in Germany, you might ask yourself,
‘What funding options are available to get my new business off the ground?’
In this article, we’ll look at the main funding types available for someone with a budding future in self-employment. You’ll learn all about how to fund your independence and what options are available and right for you.
Read our no BS Business Starter Guide:
What we’ll cover here
- Start-up grant (Gründungszuschuss) – for recipients of Unemployment Benefits I
- Entry allowance (Einstiegsgeld) – for recipients of Unemployment Benefits II
- Low-interest bank loans for start-ups, including EU funding options
- GWR grants – for businesses in the services industry and manufacturing
- Angel investments – start-up capital in the form of private loans
- Advisory funding (Beratungsförderung)
1. Start-up grants (Gründungszuschuss) – for recipients of Arbeitslosengeld-I
If you’ve lost your job and are receiving Arbeitslosengeld-I (ALG I – or Unemployment Benefits I) in Germany, you might be entitled to a start-up grant (Gründungszuschuss) to help you transition into self-employment.
Under certain conditions, the Federal Employment Agency (Bundesagentur für Arbeit) can financially support your step into self-employment with a start-up grant. However, it’s important to note that you’re not automatically entitled to this funding.
Who is eligible for Gründungszuschuss?
To apply for a start-up grant from the Federal Employment Agency, you must satisfy the following criteria:
- You plan to make the transition from unemployment to full-time self-employment
- A competent body certifies that your business model and personal situation enable you to start your own business and achieve long-term success in self-employment. Competent bodies include the IHK, the HWK or banks – no fortune tellers or crystal balls!
- At the time of starting self-employment, you must have at least 150 remaining days of your unemployment benefits (i.e., don’t leave it to the last minute to apply!)
Duration and amount of start-up grants (Gründungszuschuss)
You’ll receive an initial start-up grant for 6 months. How much subsidy you get depends on the amount of your unemployment benefits. The following applies:
- Start-up grant per month = amount of your last unemployment benefit received + €300
- After 6 months, you can receive €300 per month for another 9 months. To get this, you must prove you are self-employed full time
How to apply for a start-up grant
To apply for Gründungszuschuss, you’ll need to submit an application to your local employment agency, or ‘Jobcenter’. Generally, you’ll need to submit the following documents:
- Business plan
- Professional opinion as to the viability of the project
- Proof of knowledge to pursue self-employment
- Certificate documenting registration of the business at the trade office (Gewerbeamt)
You can call or visit your local employment agency, or request an appointment from the Federal Employment Agency, either online or by phone.
- 0800 4 555500 (toll-free), Monday to Friday from 8.00 to 18.00
Tip – How to make it in Germany
To quickly check your eligibility to start a business in Germany, check out the German Federal Government’s English site Make It in Germany. Repeat: this site is in English! Hooray!
2. Entry allowance (Einstiegsgeld) – for recipients of Arbeitslosengeld-II
If you’re currently receiving Arbeitslosengeld-II (ALG II – or Unemployment Benefits II) you might be eligible for state start-up funds called Einstiegsgeld, or ‘entry allowance’.
This financial support for self-employment is paid as a grant to Hartz IV (i.e., paid on top of your unemployment benefits). Similar to Gründungszuschuss for recipients of ALG I, no one is automatically entitled to Einstiegsgeld.
Duration and amount of entry allowance (Einstiegsgeld)
The level of support is also at the discretion of your Jobcenter. However, it can amount to no more than 50% of your Unemployment Benefits II.
The following factors are taken into account when determining the amount of entry allowance you can receive:
- Length of your unemployment
- Size of your ‘community of needs’ (Bedarfsgemeinschaft – including dependent partners and children)
- Special personal circumstances
The maximum funding period for the entry allowance is 24 months. Funding doesn’t automatically cease once your start-up becomes financially viable without support. But, if this does happen, you'll need to report it to your Jobcenter.
Tip: Under §16c SGB-II, it’s possible to obtain grants or loans up to €5,000 for the procurement of material goods for your company. To get this funding, you need to prove the viability of your start-up in the form of a business plan. In practice, your Jobcenter also requires the opinion of a competent body (IHK, HWK or bank). It’s time to suit up!.
3. Low-interest loans for start-ups
Banks offer start-ups inexpensive loans that are backed by the European Union with guarantees to the banks. Because of this EU support, banks can offer lower interest rates on loans that finance self-employed workers just starting out.
For EU support services, you always need to contact your local financial service provider – for example your bank or a venture capitalist. Your provider can then give you additional capital through EU funds. The EU's programmes are diverse, and can also apply if you wish to become self-employed in another EU country.
Some advantages of EU funding include:
- Unlike with private investors, you don't have to give up any company shares
- The European funding programmes require comparatively little security
4. GWR grants for businesses in the services industry and manufacturing
GWR grants (Gemeinschaftsaufgabe ‘Verbesserung der regionalen Wirtschaftsstruktur’ – but let’s just stick to GWR) are non-repayable cash payments awarded to new businesses in Germany to offset initial set-up costs, promote research and development or help build a company’s workforce.
GWR stands for Joint Task for the Improvement of Regional Economic Structures. Since 1969, the GWR has been a major investment programme in Germany, committed to creating jobs and promoting regional economic development.
Who is eligible for GWR grants, and how much can you get?
GWR grants apply to businesses in the manufacturing and service industries (excluding pure sales and marketing activities). So if you’re a freelance designer working with your laptop, this money isn’t for you. Sorry.
Only Gewerbe (not Freiberufler) are eligible for GWR grants.
The grants cover up to a maximum of 40% of costs during the start-up phase, including:
- Capital expenditures (e.g., new buildings, equipment or machinery), in the first three years
- Personnel costs of newly-created jobs, in the first two years
Check the facts
Check out this useful English fact sheet on GWRD grants.
How to apply for a GWR grant
Applications for GWR cash grants can be made with the state development bank in your federal state (Landesförderinstitut or Förderbank), who administer the cash grants as well as approving applications. You must submit your application before your project begins.
The application turn-around time is usually speedy. You’ll need to submit the following documents:
- Application form
- Financing statement
- Business plan
- SME status verification (if applicable)
A quick overview of GWR funding
Here’s everything you need to know about GWR funding at a glance.
5. Private loans – angel investors
This is a bit of a long shot, but you can always try to secure private funding. Angel investors is a fancy term for wealthy individuals who fund (often multiple) businesses. They invest financially in fledgling companies if they’re convinced of its potential to succeed. Of course, by participating they have the goal of making money themselves. The word ‘angel’ is used loosely here – angel investors are not purely altruistic.
As a rule, angel investors not only provide financial aid but are also keen to impart entrepreneurial knowledge – think Dragon’s Den or Shark Tank. Can you find a financially strong company looking to acquire your promising new start-up?
The disadvantage of teaming up with an angel investor is obvious: depending on your agreement, you might need to sign away some of your independence in exchange for financial support.
There's no such thing as a free lunch...
especially from angel investors.
We’ll say it here just for the record. Never enter into an agreement with investors you don’t trust 100%.
6. Advisory funding (Beratungsförderung)
Whether you’re applying for government funding or financial support through bank or private loans, you’ll almost always be asked for a business plan. It’s wise to hire a consultant to look over your business plan and assess your business as a whole.
In Germany, Federal states offer either a subsidy towards consulting costs or cover the full cost for new business founders.
Consultants can help you answer:
- Is your business idea competitive?
- Do you have the necessary professional knowledge and skills?
- Do you meet any specific admission requirements?
- Do you have the commercial and entrepreneurial know-how for the market?
- What are your capital requirements? What do you need this money for specifically?
- What are your earnings and profit expectations for your first three years of independence?
How to apply for advisory funding
Applications for advisory funding can be submitted online via the Federal Office of Economics and Export Control (BAFA) platform.
You can find more info on Beratungsförderung here.
More English info on advisory services for start-ups in Germany
Whether subsidised or not, good advice can make your new self-employed career. And bad or no advice? Well…
Visit Make It in Germany’s Advisory Services page in English for links to advisory services that are available in your region.
Want to learn more about freelancing as an expat in Germany?
We hope this article helps clarify what kind of funding options are available to start your new self-employed life in Germany. If you want to explore more expat questions, check out: