Given the current difficulty for companies to obtain conventional bank loans, the crowdfunding is increasingly sought.
Definition of the participative loan
Already introduced by the law of July 13, 1978, this type of loan pro is intended particularly for SMEs with a long-term financial need.
The equity loan is in effect a loan from the bottom line, recorded as such, considered quasi-equity, not debt (this is what makes it unique).
However, do not confuse the crowdfunding crowdfunding type of crowdfunding loan that allows any public to financially support a project they believe in.
The participative loan is part of a financing system that preserves the financial autonomy and the debt capacity of the company without the intervention of a third party lender modifying the distribution of capital.
Equated with own funds, it is a debt of last rank before the shareholder. In general, the lender is remunerated through a fixed interest rate (which can not be lower than the average of the partners’ current account pay rates) in addition to a possible profit-sharing of the company defined by contract.
Since the law of 2 August 2005, various economic actors have the right to grant participatory loans, these are credit institutions, the State, commercial companies, insurance companies and mutuals, institutions the list of which is fixed by decree of the Council of State, non-profit associations, supplementary pension organizations and provident institutions. A decree of 14 June 2006 mentions eligible public institutions: “State public institutions of an industrial and commercial nature whose purpose authorizes them to participate in the financing of economic activity”.
After an unprecedented infatuation in the 1990s, the equity loan has been used since 2008 as a support for government loans and helping companies from business sectors in difficulty such as automotive manufacturing.
Who is the participative loan for?
Since the law of 2 August 2005, the beneficiaries concerned are (Articles L. 313-18 to L. 313-20):
- craft companies
- individual entrepreneurs (no mandatory incorporation between the parties)
- industrial and commercial enterprises.
Companies, legal entities or natural persons engaged in a liberal or agricultural activity are excluded from this scheme.
What can be financed by a participative loan?
It mainly involves the financing of productive investments, such as development works, rolling stock, small equipment as well as intangibles (licenses, patents, etc.).
The financing of goodwill is also eligible for the equity loan.
The benefits of the equity loan
The equity loan integrates the bottom of the balance sheet, which means:
- Capital is assimilated to own funds
- No dilution of capital
- Better listing: strengthening of capital improves financial analysis ratios. The company is therefore strengthening with its partners
- the manager retains the management of his company
- No guarantee, neither on the assets of the company nor on the patrimony of the leader
- flexible nature of repayments based on cash flow statement
The participative loan also has some disadvantages:
- The maximum threshold of financing corresponds to the doubling of capital.
- Share buyback financing or human investment is excluded.
- The equity loan can be expensive for the company given the high interest rates.