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Business startup | Use Your Unemployment | Tips 2021
BUSINESS

Business startup | Use Your Unemployment | Tips 2021

Unemployed people who cannot find a new employer can startup their own business. Starting a business out of unemployment offers a way back into employment. However, starting a business usually involves taking out costly loans, and while an interest payment calculator can help you stay on top of loan repayments, it can still become overwhelming pretty easily. Speaking of loans, there is still a major drawback to the loan application process. Because these startup entrepreneurs typically only need small sums of money to set up a business, they often face blowback from banks. The reasoning, as unfortunate as it is, is that banks are rarely interested in lending small amounts. This is for two reasons. First, checking the requirements for smaller loan applicants is just as time-consuming as it is for applicants seeking large loans. Secondly, and arguably most importantly, is that banks don’t reap as much profit (interest payments) from smaller loans.

In addition, many unemployed see self-employment only as a stopgap solution – without their conviction. However, the “Starting of unemployment” project is doomed to failure.

Find out here how the employment agency or job center supports you with a grant and how you can successfully manage a start-up from unemployment thanks to a start-up grant or entry fee.

Who is entitled to the startup grant?

The start-up grant is a grant following the provisions of the Third Social Code (SGB III). It is only available for recipients of unemployment benefit 1 (ALG 1). Recipients of unemployment benefit 2 (ALG 2, commonly known as Hartz IV) are also allowed to set up a business out of unemployment. Still, they receive other subsidies according to SGB II, e.g., the so-called entry allowance.

Are you receiving ALG 1 and considering starting a business out of unemployment? Then you have to meet the following basic requirements:

  • You have received unemployment benefit 1 for at least one day.
  • You can only apply for a start-up grant if you have remaining entitlement to ALG 1 of at least 150 days at the time of application.
  • If you want to get support from unemployment, you have to become self-employed full-time.

 

 No official entitlement to the start-up grant to start unemployment

There is no official entitlement to the start-up grant to start unemployment. Since 2012, the approval of this benefit has been at the discretion of your advisor. Or employment agency at an employment agency. It pays particular attention to the following points:

  • Placement priority in the labor market- You will only receive the start-up grant if placement in an employment relationship is not foreseeable or unlikely. The employment agency will therefore carefully examine whether there are suitable positions for you. If necessary, they will ask you to apply first and provide you with recruitment suggestions.
  • Sustainable concept- The start-up grant only has a chance of being approved if you can prove that you can earn your living with your start-up concept even after a start-up phase. Therefore, a realistic business plan with a financial plan and a sales and profitability forecast is essential for the next three years. A competent body must assess the concept. It must confirm viability.
  • Personal suitability- The employment agency may only approve the start-up grant if he is convinced of your suitability to run a company / to work as a self-employed person. You prove your technical suitability through professional qualifications and experience or targeted further training such as participation in start-up seminars or courses on accounting. The best way to prove your suitability is through punctuality and reliability, commitment, and initiative. Convince with motivation and personality.

 

Deal with your startup idea

Prepare yourself well for the application for approval of the startup grant. Starting a business out of unemployment is not a sure-fire success. Attend start-up seminars or consultations before the interview with the employment agency and deal with your start-up idea, the financing, and the sales and profitability forecast. If you have already collected all the documents and only the (usually chargeable) certificate from a competent body is missing, you are not just showing initiative. You also demonstrate technical and specialist knowledge and make it clear that you fully support your project. It also becomes clear that you can work independently and pursue your goals.

Tip: Provide evidence of your unsuccessful application efforts together with the finished business plan when you ask your advisor at the employment agency about the startup grant. It provides you the best chance of receiving funding for starting a business out of unemployment.

Founding out of unemployment with ALG 1: How high is the startup grant, and how long is it you get the payment?

The startup grant accompanies recipients of unemployment benefits one step by step into self-employment. The payout takes place in two phases :

  • 1st phase: After starting unemployment, your young company needs time to establish itself on the market. Therefore, in this phase, you will receive a grant equal to your previous unemployment benefits one plus a further 300 euros per month as a start-up grant, which is intended in particular to finance your contributions to health and pension insurance. After all, as a self-employed entrepreneur, you cover these expenses from your resources. The first phase lasts six months.
  • 2nd phase: After six months, your self-employed activity will take reassessment. The employment agency checks how your company has done in the first development phase. You should have largely achieved the goals set in your business plan, and you should now largely be able to earn a living from the income. The employment agency only approves the start-up grant if this is the case. In the 2nd phase, you will only receive the monthly flat rate of 300 euros for social security. The 2nd phase lasts another nine months. After that, you should be able to stand completely on your own two feet and earn a living on your own.

Please note: the start-up grant will discontinue as soon as you turn 65. Even if you otherwise meet all the requirements, the employment agency will not continue to pay after your 65th birthday.

When and for what do I get the startup grant?

Recipients of unemployment benefits only receive the startup grant upon application, provided they meet the requirements and their employment agency agrees. In principle, every full-time self-employed activity is eligible. Your contact person at the employment agency will only agree if the following conditions meet:

  • You work independently in your main occupation.
  • Your business concept is viable.
  • You have the necessary professional requirements and qualifications.
  • You have the personal prerequisites indispensable for independent work, such as independent action, self-organization, perseverance, and the will to succeed.
  • Suppose you start a business out of unemployment together with others. In that case, the employment agency will generally only approve your application for a start-up grant if you are at least 50% involved in the company and have management authority or if you can prove a contractually agreed blocking minority.

What influence does the start-up grant have on entitlement to ALG 1?

Unemployment insurance does not support start-ups out of unemployment “for nothing.” With every day that you receive the start-up grant, your remaining entitlement to unemployment benefit decreases. 1. If you fail to step into self-employment and register as unemployed again, you only have a correspondingly reduced remaining entitlement. If your entitlement to unemployment benefit gone to waste, you will directly benefit from unemployment benefit 2 (Hartz IV).

Be careful with start-up grants and additional earnings!

To be considered unemployed, you can use only employees for less than 15 hours per week. It also applies if you receive the start-up grant. Even if it makes sense to earn something as the owner of a young, still poorly running company: The employment agency expects you to dedicate yourself full-time and with full commitment to self-employment. You will receive the start-up grant so that you can finance your living costs from operating income in the long term. The subsidy is not intentional to be partially self-employed and supplement the fund with a part-time job until you find a suitable full-time position again. Hence willThe startup grant is completely canceled if you work more than 14.9 hours per week dependent.

Founding out of unemployment with receipt of ALG 2

Recipients of unemployment benefit 2 (Hartz IV) cannot receive the employment agency’s start-up grant. However, the job center can support you in your step into self-employment. When receiving ALG 2, you have the option of applying for an entry fee by the rules of the Second Social Code (SGB II). As with the start-up grant, there is no legal entitlement to the entry fee. It is entirely at the discretion of your clerk whether you receive support on your way to self-employment.

What are the requirements for the entry fee for a business startup plan?

Theoretically, the entry allowance is open to every recipient of unemployment benefit 2 . Anyone who meets the requirements for receiving unemployment benefit can receive this support—the entry fee grants on an application for taking up employment subject to social security contributions or self-employment. They will disregard the former. Since only starting a business out of unemployment is considering here.

When is the entry fee gets to pay to the self-employed?

As a recipient of unemployment benefit 2, you have the option of applying for an entry allowance to facilitate the initial period of self-employment with a subsidy from the job center. The following needs must be met so that there is a chance of approval from the employment agency :

Full-time self-employed

Your start-up project relates to a full-time business start-up with working hours of at least 15 hours per week.

First apply, then work.

If you take up self-employment before applying for the entry fee, you will sacrifice your entitlement.

Placement priority in the primary labor market

If you have the chance of employment subject to social security contributions, the employment agency will reject the application for an entry fee.

Sustainability

If you want to set up a business based on benefits from ALG 2, you will only get grant a permit if your business idea is sustainable. Therefore, you need a developed business plan with a complete financial plan. A qualified body must confirm the load-bearing capacity.

Professional aptitude

To convince your recruiter, you must have the necessary specialist knowledge and the necessary qualifications. Proof of training and further education, as well as certificates of participation in start-up seminars or courses on corporate management or accounting, are suitable as evidence.

Personal suitability

Self-employed entrepreneurs have a lot of responsibility and work many hours, especially in the early stages of a company. Prove your suitability to your recruiter by showing up on time, appearing professionally, and correctly preparing and submitting all documents.

How much is the entry fee, and how long will they pay for a business startup plan?

The cost of the entry fee depends on your situation and is at the discretion of the employment agency. It makes its decision based on the entry fee regulation according to § 16b SGB II. The amount of the entry fee can be calculated on a case-by-case basis or a lump-sum basis.

The following principles apply to the individual measurement :

  • You will continue to receive your usual ALG 2 standard benefit while you are accepting the entry fee.
  • In addition, you receive the “basic amount of entry fee,” which may amount to a maximum of 50% of the standard benefit.
  • If you are suffering unemployment for two years or more, they can grant a “supplementary unemployment amount.” It amounts to a maximum of 20% of the standard benefit according to Section 20 (2) sentence 1 SGB II.
  • If you live in a community of need, the employment agency may grant you the “supplementary amount of community of need” for each additional person entitled to benefits. It amounts to a maximum of 10% of the standard benefit according to Section 20 (2) sentence 1 SGB II.
  • Overall, the entry fee may not exceed the monthly standard rate of 424 euros (as of 2019). It means that the maximum amount is capping despite all possible additions.

Beneficiaries

In the case of beneficiaries who the job center classifies as a group of people requiring special support, the entry fee is calculated on a flat-rate basis. It usually affects beneficiaries who get attracted to the traps in unemployment for a long time. The maximum funding is 75% of the standard rate. Here, too, the maximum amount of monthly support is limited to 424 euros per month.

Tip: In addition to the entry fee, ALG 2 recipients can receive further assistance up to the amount of 5,000 euros. The capital may flow into further training courses necessary for self-employed work or the company’s equipment.

The maximum duration of the entry fee

In total, recipients of unemployment benefit two can receive entry allowance for a maximum of 24 months. The following rules apply :

  • The entry fee is usually granted for six months.
  • You will receive the grant for the entire duration of the grantthis also applies if you are no longer eligible for ALG 2 due to income from self-employment.
  • After six months, you have to submit a follow-up application. The job center checks whether you still meet the requirements for the entry fee and whether there are signs of positive business development.
  • There is no formal entitlement to an extension of the entry fee. The responsible employment agency makes the decision.
  • If you give up self-employment, you must inform the job center immediately. We will then discontinue the payment of entry fees.

Preparation of the business startup: the business startup plan

The business plan is the heart of your business startup planning. The aforementioned does not only apply to a startup out of unemployment!

The business plan shows exactly how a business startup idea works, what can generate sales, what costs the business causes, and how profits and growth should develop. The following groups, among others, attach particular importance to a complete and understandable business plan:

  1. Employment agency of the employment agency or employment agency in the job center
  2. Expert bodies that should confirm the viability of your business startup idea
  3. Banks as possible lenders
  4. Investors as potential capital providers
  5. Bodies that award grants

You can find more information about the business plan and how to set it up here.

What documents do I need for the business startup grant?

Here is a compact list of all the documents that you need to submit when you apply for the startup grant :

  • the completed and signed application for a business startup grant (form from the employment agency)
  • Business startup plan with complete financial planning (financing and capital requirement plan, sales and profitability plan, liquidity plan)
  • Capacity certificate or statement from a competent body (e.g., the IHK, the Chamber of Crafts, a tax advisor or auditor, etc.)
  • Curriculum vitae with certificates and qualifications

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