Inter-company loan: rules to be respected

What's that?

The inter-company loan allows a company with excess cash to to lend to a supplier or subcontractor which has a one-time need for cash, without going through the banking system.

What's the point?

Establishing such a loan is not only a matter of solidarity and trust between long-term partners. It is also a strategic choice securing supplies or commercial opportunities for the company.

The lender ensures the sustainability of its commercial relationship the borrower easily obtains credit from a third party with which he or she already has a relationship.

The inter-company loan is a alternative to bank financing for companies with the most difficulty in financing themselves. On the other hand, this mechanism is not intended to replace the use of traditional credit and must be used on a case-by-case basis to avoid creating any dependency between the economic partners.

What risk?

Credit activity is not risk-free. The lending company does not have the same decision support tools as banks and is not always able to assess the risk of insolvency of the borrower.

Economic link between the 2 companies

To make a cross-company loan, companies must be economically linked. This economic link obligatory is allowed in the subsequent cases :

• The 2 companies are members of one and the same economic interest grouping (EIG) or of a grouping to which a public contract is awarded.
• One of the 2 companies has (or has had in the last 2 fiscal years) a public grant within the framework of the same project combining these companies.
• The borrowing company (or a member of its group) is a subcontractor of the lending company.
• The lending company has granted the borrowing company (or a member of its group) a grant of a patent license or brand, a frankness or a contract of management leasing
• The lending company is client of the borrowing company (or a member of his group). In this case, the total amount of goods and services acquired in the current financial year under a contractual relationship (or in the last completed financial year) shall be at least €500,000 or represents at least 5% the turnover of the borrowing company (or its group member) in that financial year.
• The lending company is indirectly linked to the borrowing company by through a third company, with which the 2 companies have a business relationship established on the date of the loan (or in the last completed financial year preceding the date of the loan).

Apart from these 6 cases, the economic link is not allowed and the inter-company loan is not permitted.

Conditions specific to the lending company

In order to grant an inter-company loan, the lending company must comply with the following conditions :

• The lending company is a commercial business (SARL, SAS, SA, SNC, etc.).
• The lending company has its certified accounts by an auditor.
• The lending company makes loans onlyincidentally (it should not be a routine activity).

• The lending company closes the last 2 financial years before the loan by completing the subsequent financial conditions :
  
  • Its equity are greater than the amount of the share capital.
  • Sound gross operating surplus is positive.
  • Its net cash is positive.

1. Ceiling on loans granted by the lending company

The amount of the ceilings varies depending on the size of the lending company (SMB, ETI or large company).

2. Ceiling on loans available to a borrowing company

All the loans which the borrowing company may be granted by the same company during the same accounting year, shall not exceed the greater of the following 2 amounts :

• 5% of the previous ceiling or
• 25% of the previous ceiling, up to €10,000.

What's that?

Inter-company credit is equal to payment periods that companies agree in their trade.

There are two types of inter-company credits:

• Customer Credit : a company grants a payment facility to one of its customers. Amounts due to the company are recorded on the assets side of the balance sheet in the accounts receivable and related accounts. Once the payment is made, the cash account increases and the receivables account decreases.
• Vendor credit : a company is granted payment terms by its supplier and undertakes to pay the due payment. Amounts due are recorded as liabilities on the balance sheet. Supplier credit is very widespread in France.

What is the regulation?

Inter-company credit is regulated by payment periods between traders.

In the absence of any specification in the contract or in the general terms and conditions of sale (GTC), the ‘default’ payment term is 30 days from the receipt of the goods or the performance of the service.

However, the parties may agree contractually to extend the period for payment to 60 days from the date of issue of the invoice, or 45 days end of month. In the latter case, payment must be made at the latest at the end of the month in which the 45-day period from the date of issue of the invoice has expired.

The parties may also agree on shorter payment periods.