Which financing options are helping SMEs now

Accor­ding to the KfW Succes­sion Moni­tor, around 215,000 SMEs will be looking for a succes­sor by the end of 2025. By the end of 2028, around 532,000 of the total of 3.84 million SMEs will be looking for a succes­sor. Howe­ver, there are now more entre­pre­neurs who are seriously conside­ring or alre­ady plan­ning a closure. The reason for this is that no succes­sor can be found for their own busi­ness. This in turn may be because the exis­ting busi­ness model is outda­ted or important invest­ments in the future have been negle­c­ted. Even a very low purchase price is then too high for succes­sors because the pending invest­ments make a take­over unat­trac­tive. There are inte­res­t­ing opti­ons for tack­ling precis­ely this problem in good time. 

The possi­bi­lity of mezza­nine finan­cing is often over­loo­ked. Among other things, mezza­nine finan­cing makes it possi­ble to finance neces­sary invest­ments or the exit of a share­hol­der. For exam­ple, the mana­ging direc­tors (and co-share­hol­ders) of Votro­nic , a leading manu­fac­tu­rer of elec­tro­nics for motor­ho­mes and special vehic­les, were able to acquire the shares of co-share­hol­der VR Equi­typ­art­ner thanks to mezza­nine finan­cing. They are now the sole owners. 

The rela­tively long finan­cing time­frame of five to seven years provi­des suffi­ci­ent time so that, for exam­ple, the payout of the exis­ting share­hol­der does not over­bur­den the company. Depen­ding on the struc­ture, mezza­nine can be reco­gni­zed as equity or debt capi­tal in the balance sheet. — Despite its equity charac­ter, the mezza­nine lender does not receive any typical 

co-deter­mi­na­tion rights. At the same time, mezza­nine is subor­di­nate to tradi­tio­nal debt capi­tal. This means that the mezza­nine finan­cier assu­mes a higher risk. Accor­din­gly, this addi­tio­nal risk is compen­sa­ted for by a higher inte­rest rate, which is typi­cally in the (low) double digits. Compa­nies should not be put off by the addi­tio­nal costs of mezza­nine. The varia­ble nature of mezza­nine means that the mezza­nine lender also assu­mes entre­pre­neu­rial risk; its income grows with the posi­tive deve­lo­p­ment of the company. On the other hand, mezza­nine also increa­ses the capi­tal buffer for lenders. 

Private equity is often used when, for exam­ple, there is no succes­sor within the family and an invest­ment company with its exper­tise and finan­cing power is to be deli­bera­tely included in the group of shareholders.

Mezza­nine and equity are both very suita­ble for invest­ments that faci­li­tate successful succes­sion. In order to open up pros­pects for the next gene­ra­tion, compa­nies also need growth oppor­tu­ni­ties for the coming years. Those who can provide answers to exis­ting diffi­cul­ties with invest­ments also streng­then their own resi­li­ence in the face of unfo­re­seeable chal­lenges. For exam­ple, opti­mi­zing supply chains and trade uncer­tain­ties, inves­t­ing in digi­ta­liza­tion and auto­ma­tion, lever­aging new growth oppor­tu­ni­ties, inves­t­ing in sustaina­bi­lity and energy savings. 

For years, “alter­na­tive” finan­cing instru­ments such as leasing and facto­ring have also enjoyed incre­asing demand. Howe­ver, these are highly depen­dent on the indi­vi­dual company situa­tion or the invest­ment objective. 

Chris­tian Futter­lieb is Mana­ging Part­ner and Mana­ging Direc­tor at the Frank­furt-based invest­ment company VR Equi­typ­art­ner. In this role, he is respon­si­ble for deal sourcing and invest­ments in medium-sized compa­nies as well as marke­ting. He began his career at VR Equi­typ­art­ner in 2006 as an invest­ment mana­ger at the prede­ces­sor company DZ Equity Part­ner. In 2008 he became a member of the manage­ment board and in 2014 Mana­ging Direc­tor. Before joining VR Equi­typ­art­ner, he worked as a project mana­ger and autho­ri­zed signa­tory in the tran­sac­tion consul­ting divi­sion of Price­wa­ter­hous­e­Coo­pers (PwC), advi­sing inter­na­tio­nal clients.
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