The financing of small and medium-sized enterprises is of paramount importance in Germany as these firms – the famed Mittelstand – are the bedrock of the economy. They contribute €1.3 trillion to domestic GDP and the larger SMEs – those with a turnover of between €10 million and €1 billion – account for 43% of Germany’s GDP.
Of Germany’s 3.7 million corporates, 99.8% are SMEs or mid-market enterprises (MMEs) and 71% of these companies, 2.17 million firms, have a turnover of less than £250,000. The country also has a higher percentage of larger medium-sized entities than the EU average: 17% compared with 8%.
SMEs in Germany tend to be conservatively run, family-owned businesses that have traditionally financed themselves through the country’s extensive regional banking network – 42.4% of loans to Mittelstand companies are made via savings banks (Sparkassen) and Landesbanken. Large private banks have 24.4% of the market and the cooperative banks 17.9%.
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The bonds between Mittelstand firms and their banks are strong and despite growing efforts by institutional investors and non-German banks to prise open this market, bank lending will likely continue to dominate.
