Securing a loan to start a small craft business: a practical guide
14.07.2025
9
Minutes
Katrin Straub
Managing Director at nextsure
The dream of starting your own trades business is within reach, but financing presents the first major hurdle. Many founders fail due to inadequate preparation and unclear financing applications. This guide shows you how to proceed systematically to secure the necessary loan to set up your small trades business.
The topic in brief and concise terms
A detailed business plan with a solid financial section is the basic prerequisite for any loan application to banks.
Use public funding programmes such as the KfW Start-up Loan to obtain low-interest loans with liability exemption.
An equity ratio of over 20 per cent and backing from a guarantee bank significantly increase the chances of obtaining a loan.
Laying the foundations: The business plan as the key to financing
A business plan is more than just a formal requirement for the bank. It is your strategic roadmap for the first three years and demonstrates the viability of your idea. Banks review your business plan to assess your business concept and your qualifications. A complete plan always includes a narrative section and a detailed financial plan.
In the narrative section, you describe your business idea and analyse the local market and your competitors. Clearly define your target group – whether private or business customers – and your pricing strategy. A thorough SWOT analysis (strengths, weaknesses, opportunities, threats) shows lenders that you have a realistic understanding of your environment.
The financial plan is the centrepiece and comprises several parts:
Capital requirements plan: Lists all start-up and launch costs, from workshop equipment to notary fees.
Financing plan: Shows how the capital requirements will be covered (equity, loans, grants).
Liquidity forecast: Plans all expected income and expenditure for the first twelve months.
Profitability forecast: Projects revenue and profit development for the first three business years.
A convincing business plan is the first hurdle on the path to start-up loan and signals professionalism. With a clear plan, you can take the next steps towards raising capital.
Review financing options: use subsidised loans strategically
For founders in the skilled trades, there are a wide range of public funding programmes that make access to capital easier. The Kreditanstalt für Wiederaufbau (KfW) is a central point of contact here. Applications for these loans are not submitted directly, but always via your house bank under the so-called house bank principle.
One of the best-known programmes is the “ERP Start-up Loan – StartGeld” (KfW programme 067). This programme is aimed specifically at start-ups and young companies in their first five years and finances up to 125,000 euros. A major advantage is that KfW assumes part of the credit risk, which makes lending by the house bank easier.
Other relevant funding options are:
ERP Funding Loan for SMEs (077): Offers low-interest loans for investments and working capital with a loan amount of up to 500,000 euros.
Microloans: For a smaller capital requirement of up to 25,000 euros, microfinance institutions offer an alternative, often with more flexible requirements than traditional banks.
Master craftsperson start-up grant: In some federal states, master craftsmen receive a grant that does not have to be repaid and strengthens equity.
Start-up grant: Recipients of unemployment benefit I can apply to the Employment Agency for a grant to secure their livelihood.
The right combination of a start-up loan for young entrepreneurs and grants significantly reduces the financial burden. Next, you need to understand the banks' requirements regarding your equity and collateral.
Equity and collateral: Strengthening the foundation of banks' trust
Banks usually require an equity contribution of at least 15 to 20 per cent of the total investment when granting a loan. A solid equity ratio of over 30 per cent is considered ideal and significantly improves your rating. In 2025, around one in four craft businesses had such a solid ratio.
Equity does not have to consist solely of savings. Contributions in kind such as machinery or vehicles, private loans or a stake from family and friends (mezzanine capital) also count. It is important that you can fully prove the origin and availability of these funds.
If you do not have sufficient collateral, a guarantee bank can help. These institutions, supported by chambers and associations, provide a default guarantee for up to 80 per cent of the loan amount. This minimises the risk for your local bank and makes loan approval more likely. The application is usually submitted directly through your local bank. A loan despite a negative Schufa entry is hardly feasible without such additional collateral. With a solid financial buffer and secured loans, you are well prepared for your meeting with the bank.
Managing risks: Essential insurance for getting started
A secured loan is the starting point, but protecting your business is just as important a building block. Even a small mistake can lead to substantial claims for damages that could threaten your livelihood. A affordable public liability insurance is therefore the most important policy for every trade business. It covers personal injury, property damage and resulting financial losses caused by you or your employees to third parties.
Depending on the trade and equipment, other cover is crucial. Contents insurance protects your workshop fittings, stock and supplies against damage caused by fire, burglary or water leaks. Particularly for expensive machines purchased with a tool finance loan, this is essential.
If the business is brought to a halt by property damage, fixed costs continue to accrue. Business interruption insurance covers these costs and compensates for lost profit for up to twelve months. Think also about protecting your vehicles, for example with a dedicated van finance loan that includes suitable motor insurance. A comprehensive risk analysis ensures that your newly founded business is built on a secure footing from the outset.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive specific suggestions for optimisation.
More useful links
Wikipedia offers a comprehensive article on the topic of starting a business with general information and definitions.
The Federal Funding Database offers a comprehensive overview of funding programmes for companies and start-ups.
FAQ
How long does it take to apply for a start-up loan?
The process from submitting the application to your bank through to payout can take several weeks to several months. Good preparation, particularly a complete business plan, can significantly speed up the process.
What should I do if my main bank rejects my loan application?
Analyse the reasons for the rejection. It is often due to the business plan or a lack of collateral. Seek advice from a start-up advisory service at the Chamber of Skilled Crafts. Alternatives can include microloans or a direct enquiry with a guarantee bank.
What role does the Chamber of Crafts play in financing?
The Chamber of Crafts is an important point of contact. It offers free start-up advice, helps with preparing the business plan and provides information on suitable funding programmes and the requirements for the master crafts start-up grant.
Are collateral always necessary for a subsidised loan?
Yes, even for subsidised loans, the intermediary house bank requires standard bank collateral. If this is not sufficient, a guarantee bank can step in and reduce the risk for the house bank, making the loan possible.
Can I also apply for funding after setting up the business?
Most grants must be applied for before the project begins, i.e. before contracts are signed or investments are made. However, some programmes, such as the ERP Start-up Loan, can be used within the first few years after founding.
Which insurances are mandatory for a trades business?
The only legally required membership is in the employers' liability insurance association (statutory accident insurance). However, public liability insurance is essential for every tradesperson, even though it is not legally required.
