One of the biggest problems that every entrepreneur faces is the search for the necessary financing for the start-up of his business project. In most cases, the lack of own resources makes this search for third-party financing necessary to provide the business with the capital necessary for the start of the activity.
The majority seek such financing in banking entities. However, when the doors to that financing are closed, we must look for other possible ways to get the money. And one of them is external financing but from individuals through personal loans, a simple, cheap and interesting way that every entrepreneur should know.
The loan is the legal business in which a party (borrower) receives an amount of money with the obligation to return it to another party (lender). But that lender should not always be a financial entity, it may be another individual who lends that money. This is where the personal loan between individuals is born. The entrepreneur finds a person, in most cases family, friend, … who lends him an amount of money either because he does not get it in other ways or to avoid the costs caused by bank loans. We will give the guidelines to carry out this legal operation with all legal guarantees and avoiding problems that may arise.
The loan between individuals must be expressed in writing. Notary deed is not mandatory, so we can save that extra cost of doing so before a notary. The private contract between individuals that includes the conditions of this financing is valid. The verbal contract, although legal in our legislation can cause problems between the parties and for third parties. Therefore, it is recommended that it be done in writing. Between the parties, the problems come from not being able to expressly demonstrate the agreed conditions. In the face of third parties, the problem may be greater, since if it is not expressed in writing, it could be understood that a donation has occurred instead. of a loan and there may arise tax problems since the donation requires the payment of taxes on most the occasions. In conclusion,
Minimum Document Requirements
Although there is freedom for the parties in the manner and manner of drafting the contract, there is a series of date or stipulations that we believe should appear in any loan agreement between individuals:
- Personal data of both parties, both lender and borrower. Name, surname, ID and current address.
- Amount of money delivered and date thereof. The way of delivery we recommend that it be banking, through deposit or transfer in checking account to be able to demonstrate where that money comes from.
- Loan term and payments during it. Absolute will between the parties to decide the duration of the loan and the repayment terms. It is possible to opt for a period of lack (period during which it is not mandatory to return any amount). You can opt for a linear return (always the same amount) or a progressive system (more and more is returned) or regressive (less and less is being returned).
- Interest of the loan. The most common in loans between individuals is that the interest is 0, that is, that no “surcharge” is charged to the money borrowed. But the parties can agree that there is an interest applicable to the borrowed amount, although this interest charge has a tax impact on the lender who must declare them in their income statement. Both in one way and another, it is always advisable to translate it into writing in the contract.
Those are the minimum conditions that should appear in all loan agreements between individuals, but we insist on the will of the parties to be able to add other conditions to that loan.
Legalization of the contract
The contract, once signed by the parties, acquires legal force. However, it is mandatory to settle the Tax on Capital Transfers (Model 600) within one month of its signature. That tax is settled is not synonymous with payment. In this case we are facing an example operation, which is, it is mandatory to file the tax but does not generate any payment.
This legalization is not only mandatory but it is highly recommended because it is a way of obtaining a seal from a Public Administration (in this case the Ministry of Finance of each Autonomous Community) that makes visible the celebration of the same against third parties. Without this registration, the parties cannot prove that they did so on a specific date. In the face of the problem discussed above about the possible confusion between loan and donation, it is the way to prove that it is a loan and that it was registered.
Physical or legal persons
Although we have focused on the loan between natural persons, in totally legal and the way to proceed is the same, in the case that one of the parties (borrower and lender) or even both are legal persons, that is, commercial companies.
The mechanics will be the same, although the treatment of them in the Corporate Tax is somewhat different than in the personal income tax, especially if they are “related transactions” between partners and society.
It is for all the comments, that the personal loan between individuals is a form of financing that must be taken into account by the entrepreneur who wants to start a business, either because of the simplicity and zero cost involved, or because of the difficulty of finding another funding source. Although we always focus on entrepreneurs, this legal contract can be made outside the business environment, so it serves any relationship between individuals.
From the Service of Creation of Companies and attention to Entrepreneurs of the FER we always recommend to take into account all the possible sources of financing and this is one more. In the case of opting for this route, we provide all the means to carry it out. Both prior advice, as a loan model and how to fill in the Model 600 for registration.