A development loan is a loan granted by a state-backed promotional bank on better terms than an ordinary bank loan. In Germany the best-known provider is the KfW, for example with its ERP promotional loan, which is explicitly designed for taking over an existing business too. In Austria the aws plays a similar role. In Switzerland there are cantonal programmes and loan guarantee cooperatives.
Typical features of a development loan are a lower interest rate than on the open market and often long terms. Sometimes there is an initial period with no repayment: you pay only interest at first and start paying down the principal later. This gives the business room to breathe after the handover.
One detail is especially valuable: the liability release. Here the promotional bank takes on part of the default risk and removes it from your own bank. That makes it easier for the bank to say yes at all, particularly with small businesses that have few securities.
A development loan is usually not applied for directly with the promotional bank, but through your own bank. It reviews your plan, forwards the application, and handles the loan. A viable business plan showing that the business can cover the instalments from ongoing operations is almost always required.
A development loan rarely stands alone. It combines well with equity, a classic bank loan, a guarantee and a seller loan. As one building block of the whole acquisition financing, it lowers the monthly burden. Often it is what makes the succession affordable in the first place.
For business sellers
If your potential successor plans to use a development loan, the odds of the financing actually coming together rise. For you that means more serious buyers and a realistic sale.
A buyer with solid acquisition financing from a development loan and equity brings less risk that the deal later falls through over money. Keep your records clean so your buyer's business plan rests on reliable numbers.
For corporate buyers
A development loan is often your most important lever for managing a takeover without spending all your savings. Talk to your bank early, because it files the application for you.
To get the bank on board you need a convincing business plan and usually some equity. If you lack securities, combine the development loan with a guarantee. That is part of well-thought-out acquisition financing.
Example
Lena takes over a small clothing alterations shop for 140,000 euros. She contributes 40,000 euros of equity and covers the rest with a 100,000-euro KfW development loan that her bank applies for. Thanks to two repayment-free initial years, the business stays liquid in the start-up phase.
FAQ
What is a development loan in simple terms?
A development loan is a loan from a state promotional bank, in Germany usually the KfW, with a lower interest rate and long term. It helps you put your acquisition financing on a secure footing.
Where do I apply for a development loan?
Usually not directly with the promotional bank, but through your own bank. It reviews your plan, forwards the application, and normally needs a business plan to do so.
What does the liability release do?
The promotional bank takes on part of the default risk and relieves your own bank. That makes approval easier, especially if you lack securities, much like a guarantee.
Do I still need equity?
Usually yes. A development loan rarely covers everything. A share of equity shows the bank you have skin in the game and improves the terms.
Can I combine a development loan with a seller loan?
Yes, that is common. A seller loan often closes the gap that remains between the development loan, equity and the bank loan.
Is buying instead of founding worthwhile with a development loan?
Often yes. When you buy an existing business there are already revenues and customers, which makes the business plan more convincing. And many development loans are explicitly meant for succession, not just for new start-ups.
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