One of the lesser-known ways of financing a company is the participatory loan . This is a form of financing through which an entity or an investor lends money to a company based on a business plan that it considers attractive. The interest on repayment is conditional on the company's performance, and it may be stipulated that the loan be converted into a share in the company's share capital.
The characteristics of participatory loans are set out in article 20 of Royal Decree-Law 7/1996, of 7 June, on urgent fiscal measures and the promotion and liberalisation of economic activity. They are as follows:
1- This is a long-term loan with variable interest . The interest is determined based on the evolution of the activity of the company receiving the financing, although it is also possible to agree on a fixed interest rate, regardless of the evolution of the business.
This gives the phone number in us company a wide margin of time to carry out its project without being overwhelmed by financing costs. They usually have a long grace period to repay the principal.
2.- A penalty may be agreed in the event of early repayment , provided that an increase in equity of an equivalent amount is made. Since the participating loan can be considered as equity, its repayment would cause a decrease in net worth. Hence the obligation to offset it with a capital contribution.
3.- Participating loans, in order of priority of credits, will be placed after the common creditors . That is, if the project does not go ahead and the company had to declare bankruptcy, the lender would collect after the rest of the creditors.