Financing and funding: realignment in the coalition agreement

Germany is facing massive challenges: dilapidated infrastructure, neglected structural change, the path to climate neutrality and, last but not least, the lack of affordable housing. Considerable investment is needed to turn the tide.

According to its 2025 coalition agreement, the new government’s coalition partners, the Christian Democratic Union/Christian Social Union and Social Democrats, are planning to realign their funding policy. Away from small-scale funding programs and towards strategic funds and innovative financing structures from corporate financing.

What consequences does this have for companies in the housing industry, project developers, local authorities and investors, but also for the state and its development banks in connection with the development of new development programs? And what will be important in the future? Although many of the following measures are already laid out in the coalition agreement and the concept for the subsequent funds, they still need to be further specified in more detail in the subsequent implementation process. We provide an overview – and show why interdisciplinary advice with regard to structure, risk, return and eligibility is becoming crucial right now in order to ensure successful financing.

The “Germany Fund” – a lever for financing

At the heart of the new funding policy is the planned “Germany Fund”. As a Federal Special Fund with an initial volume of EUR 10 billion, it is intended to trigger investments of up to EUR 500 billion in the coming years. It will not only rely on traditional grants, but also on modern, structured financing instruments from corporate financing such as:

• First-loss guarantees and co-investments
• ESG-compliant project structures
• Blended finance, tranching (junior/senior)
• Revenue sharing models and climate protection contracts

The central objective of these state funding measures is to mobilize as much private capital as possible for socially relevant future projects, particularly in the areas of energy, mobility, digitalization, education and housing.

Housing Investment Fund – core project of the German government

Another key project is the Housing Investment Fund, which is intended to facilitate private investment in the socially oriented rental housing segment in the same way as the Germany Fund, particularly in the case of a lack of creditworthiness and insufficient equity.
The following is envisaged:

• Guarantees and sureties for financing
• Hedging of bonds and cash flow-based project financing

which are granted via trust solutions in cooperation with KfW and state development banks. The recipients of the funding will be municipal and private housing companies, housing cooperatives and private investors.

The envisaged guarantee volume is up to EUR 30 billion. Decisive framework conditions, in particular with regard to social earmarking (e.g., rent control and occupancy restrictions) and the percentage of risk assumed, have yet to be determined.

The exact funding guidelines of the Housing Fund have not yet been published. However, the information available so far indicates that compliance with the rent cap of EUR 15 per square meter will be a key condition for claiming the funding.

Restructured housing promotion: Two programs are sufficient

In order to simplify the funding landscape in residential construction, the large number of existing funding programs will be reduced to two central KfW programs:

• One program for new construction
• One program for modernization

Both programs should be easily accessible digitally and geared towards cost-saving, climate-friendly and serial construction. It should be noted that these requirements will have an impact on financial planning and the integration of ESG criteria.

Future Fund: effectively financing growth strategies

The Future Fund is aimed at technology-driven companies from the start-up to the scale-up phase. An increase from the current 12 billion euros to up to 25 billion euros is planned.
Relevant instruments:

• Co-investments with first loss protection
• Convertible loans and VC investments
• Blended finance approaches (esp. for DeepTech, GreenTech)

In addition, the entire start-up financing landscape is to be subjected to an efficiency check and realigned if necessary.

Climate and Transformation Fund: 100 billion euros for sustainable investments

In future, the Climate and Transformation Fund (“CTF”) will not only provide grants and promotional loans, but also:

• Grant more guarantees
• Make equity investments
• Enable project financing
• Make multi-year funding commitments for investment security

New: 100 billion euros from the special infrastructure fund will flow specifically into the CTF – including for industrial decarbonization, building refurbishment, green mobility and hydrogen.

The different purposes of the Germany Fund and the CTF in the area of energy and climate financing are becoming increasingly blurred because the CTF will also make more frequent use of the financing instruments that characterize the Germany Fund.

Strengthening SMEs: “ZIM” and “KMU-innovativ” gain in importance

According to the coalition agreement, two proven programs are to be expanded:

• Central Innovation Program for SMEs (“ZIM”) for open-technology innovation projects
• KMU-innovativ for research-intensive projects

Both programs grant non-repayable subsidies – especially for SMEs with strong innovation potential.

Research tax allowance becomes even more attractive

The research tax allowance is to receive an update:

• Higher subsidy rates
• Simplified application procedure

The more attractive design aims to achieve broader use by SMEs.

Other tax issues in the coalition agreement.

Central platform planned – one-stop, modular, digital

As a future project, the implementation of a central financing platform is planned, which will provide SMEs and start-ups in particular with easy access to public funding, guarantees, equity capital and private investors in connection with the financing of their future projects.

When setting up such platforms, it becomes clear that legal aspects such as data protection, contractual structures and regulatory requirements must be considered in close cooperation with IT right from the start – in particular from the perspective of the platform operator, users and the supervisory authority. Our own experience in setting up crowd-funding platforms and in due diligence in the course of selling such platforms has shown us where the legal pitfalls can lie.

Solvency II: More investment scope for institutional investors

A planned relaxation of the Solvency II regulations is intended to give insurance companies and pension funds more scope of action within the framework of regulatory capital requirements in order to invest in long-term future projects.

Further steps: From conceptual design to implementation

Strategic implementation is required to ensure that the planned funding structures are effective. The main tasks are

• Implementation of individual laws to implement the fund structures
• Specification of the funding guidelines, in particular with regard to the type and amount of risk assumed in order to achieve leverage effects
• Definition of investments to be funded that are sustainable
• Establishing efficient funding processes, in particular through digital access and efficient procedures

External expertise is a success factor, especially when it comes to developing viable funding models and processes. The “Start-up BW Pre-Seed” program, which we designed for the Baden-Württemberg Ministry of Economic Affairs, has shown how important practical structuring and legally compliant implementation are.

Conclusion: New funding instruments - your opportunity for future-proof investments

Anyone looking to invest in the near future, be it in housing, energy, digitalization or innovation, will find better, more diverse and more targeted support than ever before.

The new funding architecture is based on

• the interaction of grants, loans, guarantees and co-investments
• targeted risk distribution enabling projects which previously seemed impossible to finance
• ESG-compliant structures being particularly attractive for private investors.

In order for you to make full use of this new scope for action, the relevant financing and funding instruments must be integrated into your investment and financing structure at an early stage.

This is where we step in. We support you in structuring your project correctly, identifying suitable subsidies and proposing financing solutions that are not only viable on the basis of the new architecture, but also make optimum use of its benefits.