Financing through participatory lending remains a key component to the success of many companies. But… what does this type of loan really consist of? What benefits can be obtained? What differentiates it from other capital investment operations? What is your treatment for accounting and tax purposes? Do you want to know how we can help you in tuning Business Consulting?
Participatory loan definition and legislation
It is a loan for companies in which the lender manages to negotiate certain rights and benefits on the operations of the financed company. These are generally fixed-interest loans and are usually agreed as a financing formula halfway between social capital and long-term lending. Operation that is regulated on the basis of Royal Decree-Law 7/1996, of 7 June, and Law 10/1996, of 18 December.
Important features of participatory lending
- Their maturity is long-term. A long period of lack of return is usually given.
- The lender will receive variable interest benefits depending on the evolution of the business activity. This is the main feature that makes this type of loan defined as “participatory lending.” A maximum limit of participatory interest is usually set.
- They are above any other credit or business obligation. It is even ahead of the interests of the company’s partners.
- It is often demanded that the borrower company have funds higher than the loan to ensure that there are no risks.
- In the face of unfavorable situations, it is possible to delay settlements and offer more opportunities for recovery.
- It is possible to anticipate the cancellation of the participatory loan if it is compensated by an enlargement of the same amount so that no decapitalization occurs. However, the parties usually agree to penalizing clauses for early amortisation.
When are participatory loans used?
Participatory loans are usually requested for the purchase or construction of fixed assets, to make any expansion, refinancing of debts… Etc. At least it is usually operations that last about five to seven years.
On the other hand, due to their committed and long-lasting character, they require more documentation and require greater requirements. It is important that there are not too many restrictive clauses so that the credit can be postponed at some point to solve any problem that arises. Our consultants can help you verify that there are minimum requirements for the security of your company.
Normally, participatory loans with longer instalments tend to be the most flexible because they allow renewal and make variations to meet new business needs that arise in the future.
Accounting consultancy of the participatory loan
According to the Accounting and Auditing Institute, the participatory loan does not have any exceptionality in its accounting. Registration shall be made as provided for in non-commercial loans or non-commercial debts. That is to say, the same treatment of an ordinary loan should be given, but in the elaboration of the annual accounts it must be broken down properly. By a long-term debt note. To facilitate its localization in calculating the accounting patrimony in face of possible deductions or in case of dissolutions of companies.
Tax advice on participatory lending
At present and since January 1, 2015, the fixed and variable interest accrued by the formalization of participatory loans will be deductible in the annual liquidation of corporate taxes. With the exception of those corresponding to participative where the creditor is a company of the same group according to art 42 of code trade. Although the type of related operations must be taken into account.
Don’t worry if you have questions you can always consult our experts. We offer you a tax planning tailored to your company’s needs. That way you can take better advantage of our consultancy and management services.
- We carry out control and permanent monitoring of patrimonial and corporate structures.
- Tax advice and accounting of participatory loans
- Security, inspections, opinions
- Preventive fiscal audit on participatory loans
- Economic analysis, budgets and management
In fine-tuning you have tax, financial and accounting advice for participatory loans. You can contact us to solve any question.
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