Participating loans and subordinated loans

The participating loan is usually a mezzanine loan and thus a special form of loan. For regulatory reasons, participating loans are typically structured as subordinated loans, which means that the claims of the loan creditors are only settled after the “normal” liabilities of the company. The lender of a participating loan receives a share in the profits or turnover of the company in return for the capital. This participation may be limited to the business purpose for which the loan was granted or may concern the entire business activity. In addition, a fixed interest rate can also be agreed.

The main difference between a silent partnership and a participating loan is that the lender does not have a stake in the company. He has no influence on the company’s business. A participation of the lender in the losses of the company is also excluded.

Since the implementation of the German Small Investor Protection Act (Kleinanlegerschutzgesetz), participating loans and subordinated loans are also investments for which a prospectus is generally required. Special exceptions exist for an offer of such loans via a crowdfunding internet platform. A licence pursuant to Section 34f of the German Trade Regulation Act (GewO) is required for offering such loans to investors.

The participating loan is a flexible investment model that offers the entrepreneur the opportunity to raise funds without having to hand over the reins.