Participatory loan what it is and how it works


Do you know participatory loans? It is an interesting financing instrument if you are an entrepren eur and want to start your own company. Small and medium-sized companies tend to stumble in the beginning with the difficulty of accessing long-term financing, either through their own or third-party funds.

To overcome this obstacle, participatory loans offer very interesting conditions for SMEs, especially because the repayment of the loan is subject to the progress of the business. What do you think that the lender allows you to repay the loan by participating in your benefits? In this article we tell you all about this method of financing.

What is a participatory loan?

What is a participatory loan?

If you are thinking of starting your own business, this mechanism can be a good financing option. It is not a loan to use or an injection of private capital. The participatory loan is midway; It usually has good access requirements and adjusts to the situation of your company.

It is a loan to return as your company goes. That is, if your company has not had enough benefits, the fee may go down. It is a way to promote business projects and bet on talent.

The rationale for participatory loans is the promotion of viable business projects that have prospects for growth and consolidation. For this reason, it is normal for these loans to be offered by public entities that are dedicated to supporting entrepren eur s. Even so, it is possible to find some private entities that also offer this product.

Characteristics of participatory loans

Characteristics of participatory loans

The three characteristics that make participatory loans a unique tool for entrepren eur s are: interest, repayment and access conditions. However, they are not the only ones. We review them all below:

  • Fixed and variable interest linked to the progress of the business. The indicator of the business to which the variable interest is linked can refer to billing, finish a product, reach a certain number of customers. It varies according to the case, although in practice this indicator is usually the profit or turnover.

Fixed interest is usually symbolic and is intended to cover inflation rates or opportunity costs, as the idea is that the lender participates in the company’s results.

  • Restriction for early repayment. The loan can only be canceled in advance by a capital increase of the same amount. In this way the company is not undercapitalized and debts with other creditors are avoided. Frequently, the parties agree on a clause that penalizes the company in case of early cancellation of the debt.
  • Subordination to other debts. The lender assumes similar risks to the employer. Therefore, it will only charge after common creditors in a bankruptcy proceeding.
  • It has consideration of net worth. This is so for the purpose of capital reduction and liquidation of companies. Therefore, in an unfavorable economic situation, it is allowed to delay settlement by offering more recovery options.
  • Interest deductible on corporate tax. Accrued interest (fixed and variable) can be deducted from corporate tax.

Requirements to apply for a participatory loan

Requirements to apply for a participatory loan

If you want to apply for a participatory loan for your company, you must have the following requirements:

  1. Be legally constituted as an SME.
  2. Have a healthy financial and economic situation.
  3. The business project must not belong to the financial or real estate sector.
  4. Accounts must be audited.
  5. Have a business plan with the mission and vision of the project. It is also necessary to submit a feasibility report and demonstrate the validity of the project. This aspect will determine whether or not the participatory loan is granted.

What do you think about participatory loans? If you are interested, consult with your financial advisor the possibility of using it to finance your business idea. With the right help you can establish the best financing plan for your company and minimize the risk of competing in the business market. 

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