The participative loan is a very common financing instrument among companies in early stages, characterized by the presence of the lender that, in exchange for a certain amount of money, participates in some of the benefits of the financed company, in addition of the collection of a fixed interest previously established. Traditionally, it is considered as an intermediate figure between the injection of capital by a private investor and the loan offered by financial institutions.
This product has become highly relevant in the entrepreneurial field, since it can be used by loan companies or private investors to finance a start-up. These would have the possibility of eventually entering the emerging company as a partner, since the contract establishes a period of time after which the investor can decide between requesting the loan to be repaid or transforming that debt into a percentage of capital participation. of the society.
Participatory loans have thus been conceived as a way to promote the creation of viable business projects with prospects for growth and consolidation. Therefore, the requirements to access this form of financing are closely linked to the viability of the company and its business model. Thus, when formalizing a loan of these characteristics, instead of requiring the usual personal or mortgage guarantees for the granting of a loan, financial institutions usually demand a detailed report of the business model, in order to know to what extent the company is sustainable, has future prospects and, therefore, it is safe to bet or invest money in it.
Advantages and disadvantages of a participatory loan
As we saw in previous lines, the main advantage of participative loans is that they do not require guarantees, although for their concession it is necessary to present a quality business plan that guarantees the viability of the business project.
Furthermore, the interest on participative loans is much more flexible than that of other types of financing, since the amount of the installments that the entrepreneur must pay adapts to the evolution of the company itself. As for amortization, although within the financial market there is a wide range of financial products, participative loans offer the longest amortization periods. Thus, depending on the type of entity that grants the loan, the repayment of the loan can last up to ten years.
In the same way, the grace periods to which the employer can receive are usually longer than in loans to use. In fact, sometimes up to seven years of grace are offered, which, during that time, will allow the financed company to pay reduced installments that only amortize the interest.
On the other hand, the financial expenses linked to this type of credit, such as possible commissions or interest, are deductible from the tax base of corporation tax. In addition, its priority of payment is behind that of normal creditors, which is an ease when facing the lack of liquidity or possible debts of the company.
Participative loans are considered equity in terms of capital reduction
Among the disadvantages of this financial product is that companies do not know what the real cost of the loan is, since it will depend on the evolution and the economic results that the company obtains from its performance. In fact, entities that start to reap positive results will have to pay a higher interest rate than with other financing methods. As a general rule, financing is more expensive after the sum of the fixed and variable interest associated with the loan. In addition, the financial institution that grants the credit usually requires the applicant company to make an annual financial reserve to pay the loan granted with part of the benefits obtained.
What is a participatory loan model like?
Participatory loans are regulated by article 20 of Royal Decree-Law 7/1996, of June 7, on urgent measures of a fiscal nature and the promotion and liberalization of economic activity.
Two interest rates are reflected in a model participative loan contract. The first is always present, and is the one that is linked to the company’s results. It is, therefore, a variable interest that changes according to the annual net profit. This interest rate is usually also set by minimums and maximums.
On the other hand, there would be the fixed interest that is stipulated at the time of the formalization of the contract. This interest is independent of the company’s income statement and is usually a differential set by the lender itself.
This type of agreement must be implemented in writing, without it being necessary to raise it to the public in a deed granted before a notary, so the bureaucratic burden and the added cost that it entails is a point in favor compared to, for example, the capital increase.
In conclusion, participative loans can be a very interesting source of financing for certain companies that are starting their business and have a future projection. They are usually long-term loans in which their early repayment is limited, so the lender is the first interested in the success of the business project and, therefore, in making the terms of the loan more flexible. In addition, in the event that the company must be liquidated, the participative loan is considered part of the net worth and helps to delay or even prevent the closing of the company.