Full financing
In banking, full financing is understood to mean the acquisition of property or rights financed exclusively through loans without equity .
General
As a rule, credit institutions require the borrower to (partially) use equity capital for consumer or investment financing so that the credit risk can be reduced and the borrower also proves his own financial commitment by assuming his own financial risk . This is particularly important when lending on the financed objects, since in this case they serve as collateral for the loan . Then the necessity of using equity arises from the fact that, according to the statutes, the banks may only be granted a percentage of the mortgage lending value of a loan security, namely up to the amount of the lending limit . The difference between the lending limit and the lending value (or purchase price) is usually represented by equity.
Subject of full financing
In the case of companies, investments such as equity investments , motor vehicles or machinery , in the case of natural persons motor vehicles, household items and other consumer goods as well as construction financing are possible items / rights to be financed . In the case of public grants that cover the costs of a project, full financing is less likely to apply. The reason for this lies in the “Principles for Funding Guidelines” issued under Section 44 of the Federal Budget Code , where partial funding for grants is regarded as a rule because of its subsidiary nature.
High risk
Full financing is not prohibited by law for credit institutions; their credit decision is therefore based solely on economic considerations as part of the credit assessment . Because is not used in the full-funding equity increases according to the loan amount and thus the payable by the borrower debt service , consisting of loan interest and repayment .
This debt service is compared with the available income of the borrower from his economic activity during the creditworthiness check . These include in company of free cash flow in households whose disposable earnings of wage / salary or pension . This comparison leads to the key figure of the debt service limit . The debt service coverage is to be examined by banks in advance of the credit.
If one of these variables changes to increase the risk, this has the effect of worsening the key figures. If, for example, the cash flow of companies falls due to the recession , the disposable income of private individuals due to unemployment and / or the interest rate rises in both cases due to the economic situation , then a negative leverage effect leads to a more pronounced deterioration in the key figures than in the case of loans with equity. Worsened key figures indicate an increased credit risk and financing risk , which begins earlier than with partial financing. On the borrower's side, full financing is therefore associated with a very high financing risk.
Examples
Full financing is therefore the absolute exception in banking for reasons of risk. Typical cases of a high proportion of loans are debt-financed takeovers (such as management buy-outs or management buy-ins ) for companies or real estate financing for private individuals. In these cases, the borrower's income situation must be of such integrity that full financing still appears acceptable even under deteriorated conditions. Only in the case of co-financing is full financing completely excluded. In contrast to full financing, the usual partial financing, in which the borrower has to prove and pay an equity share.
Individual evidence
- ^ Sabine Arzinger, Chances and Risks of the Personal Budget , 2012, p. 39 f.
- ↑ Principles for funding guidelines
- ↑ Federal Commissioner for Economic Efficiency in Administration, Federal Government Grants for Building Construction , 2005, p. 9
- ↑ BTO 1.2.1 of the minimum requirements for risk management ( MaRisk ) according to circular 15/2009 of the Federal Financial Supervisory Authority ( BaFin ) of August 14, 2009 ( reference number: BA 54-FR 2210-2008 / 0001 ( page no longer available , search in Web archives ))
- ↑ Helmiut Geyer, The matching property, 2009, p. 82