Entrepreneurs who have viable business projects with prospects for future consolidation are the main destination of the so-called participatory loans, a financing formula that is halfway between the money that a private investor contributes to the social capital, for example a business angel or a venture capital entity, and the traditional long-term bank loan.
The participative loan is a type of financing used by public entities that financially support entrepreneurs, such as the Innovation Company and also private entities. They are even loans that are used by some of the participatory financing or crowdfunding platforms that mediate between investors and developers.
The five differences
In both the traditional loan and the participative loan, the lender grants a certain amount of money to the company, in this case in the long term, in exchange for the payment of interest and fees, these financial expenses being deductible for tax purposes. both cases. However, there are a number of differences between one type of loan and another, mainly within the following five areas:
Fixing the interest rate
While in the traditional loan the interest payment is not adapted to the evolution of the activity of the financed company and consists of a single interest rate, in the participative one it usually has a double component. On the one hand, a fixed or minimum interest is fixed, while on the other a variable remuneration is established based on how the business evolves. Net profit or turnover (turnover) are usually used to measure this evolution, setting a maximum limit for this “participatory” type interest. In this way, a company that does well with the business and has requested a participatory loan, will pay more interest.
Consideration for commercial purposes
The traditional loan is always a liability of the company (a debt to third parties), however, the equity is considered equity for the purpose of reducing capital and liquidation of companies provided for in the commercial legislation, in the event that there are losses. This is important, because in case of unfavorable economic situation, it allows to delay the liquidation of the company offering more opportunities for recovery. In this sense, it should be noted that they are subordinate to any other debt held by the company, standing only ahead of its partners. That is, a company that accumulated losses that led to the closing, tended to return the participating loan after liquidating the rest of debts and only before the members charged.
In traditional loans, additional guarantees are usually required to guarantee the amount borrowed, while in equity loans, no guarantee other than that provided by the business plan presented by the company is usually required, hence it is analyzed in detail. They usually study aspects such as share ownership, professionalism of managers, measured by their experience in the sector, their technical training and coverage of all management areas, and the proposed business model.
The early amortization of the traditional loan requires only the payment of the commission that, in its case, is agreed with the financial institution. On the other hand, that of the participative loan, in addition to the payment of the corresponding commission, requires a capital increase of the company in the same amount as the one that is amortized. With this, what is pursued, taking into account the consideration for commercial purposes of this type of loans, is to prevent the company from becoming decapitalized.
Amortization and deficiency periods
Participative loans have grace periods (during which fees only include the payment of interest) and amortization periods (in which the entire loan must be repaid), which are longer than those offered by traditional bank loans.
Regarding the legal regulation of the participative loan, it is included in article 20 of Royal Decree-Law 7/1996, of June 7, on urgent fiscal measures and promotion and liberalization of economic activity.