Credit worthiness and Rating

Many companies complain about the fact that financing by means of a loan is getting more and more difficult in Germany. Two of the most frequent reasons for rejecting an application for credit are inadequate collaterals and, above all, an insufficient equity quota. This development is intensified by a changing business policy of the German financial institutions, which increasingly withdraw from loan business. Small and medium-sized companies from Germany and even companies from abroad face great difficulties getting a loan at all. This development will worse off as a result of the new equity requirements of the Bank Supervisory Committee of Lending Business (Basel II), which will have a considerable influence on the business policy of the financial institutions regarding the financing of small and medium-sized companies. Basel II will attach the coverage of a loan with the banks´ equity capital to the personal credit worthiness of the borrower from the year of 2006 on. There will be a grading of conditions which will depend on the credit worthiness of the borrowing company. The lower the credit worthiness, the higher the interest on borrowed money. The lower the equity equipment of a company, the lower its credit worthiness. As a result of this Basel II will mainly result in a general rising of interests. Therefore companies need additional equity capital to improve their credit worthiness and to cope with the serious changes concerning business financing.