Equity loans 

These loans are regulated by Royal Decree 7/1996, of June 7, and Law 10/1996 of December 18.

Characteristics

Equity loans are those in which:

• The institution lending the money receives a variable interest rate that depends on how the borrower's business performs. Nevertheless, it is possible to agree on a fixed interest rate that is not tied to business performance.
• Borrowers can only redeem the equity loan before maturity, if this is compensated by an increase of the same amount from their own funds.
• In terms of priority of assignment, equity loans come after ordinary creditors.
• Equity loans are considered book equity as regards capital reductions and company liquidation, as established in the commercial law.
• All interests paid can be deducted from Corporate Income Tax.

Advantages

The advantages of equity loans are:

• For the borrower:
  • The remuneration is tax deductible
  • It is not necessary to transfer company property
  • It is not necessary to involve third parties in the management of the company
  • It avoids hostile partners entering the company
  • As a subordinate loan, it is possible to increase borrowing capacity
  • The payment of interests is adapted depending on company performance
  • The redemption period and grace period are longer
• For the lending institution:
  • Planned, periodic returns
  • Short-term returns
  • Divestment is easier
  • It eliminates the difficulties involved with evaluating the company
  • It enables higher returns by having stakes in the results

More information

• Spanish Company for Innovation 

  Pº de la Castellana, 216 Planta 5ª

  28041 Madrid

  Tel.: 0034 91 570 82 00

  Fax: 0034 91 570 41 99