The loan between individuals

We started another week in this world of entrepreneurs, entrepreneurship, invoices, loans, financing and we want to talk about a topic sometimes unknown: The loan between individuals who can be an option to be valued by entrepreneurs when starting up your company.

The Loan between individuals is a legal figure recommended in many occasions and unknown (the Civil Code includes the loan agreement from its article 1.740).

When we talk about “loan” we almost always think of the one that grants a banking entity. However, it is possible to make a loan between individuals and it is not mandatory that it be between family members. Of course, we are facing a legal and even very interesting legal form in certain cases.

Loan agreement

The first thing to highlight is the importance of documenting that loan agreement. The law also does not require public documentation (before a notary), only a private documentation (private loan agreement between individuals) is valid. In this contract we recommend that there are minimum data:

Date from both parties

Date from both parties

LENDER (who lends the money) and BORROWER (who receives the money). The data must be name, surname, ID and address of both parties.

Date of delivery of the money and amount delivered

For possible tax consequences, it is very important that the date of delivery of the money, its form (in cash, by bank transfer, …) and, obviously, what is the exact amount that is lent.

Deadline for return and how to make that return

credit loan

Like any other loan, we must establish a period of time for its repayment, whether it will be a full payment or partial payments. Likewise, it should be noted how and where the money will be returned (cash deliveries, current account income)

Interest charged or free

Interest charged or free

Both ways are possible. The lender, even a private individual, may charge a surcharge or interest to the borrower when the repayment of the borrowed amounts is made. Another possibility is not to collect more money from the borrowed, therefore, we will talk about a free or interest loan 0.

With that minimum of data we will be sure that the entrepreneur has no future problems in this aspect. But in addition, we must present the contract for the purposes of the Property Transfer Tax (ITP). Why? Because we are facing a legal contract related to this tax. However, it is an act as an example from it, so its presentation is required but it does not accrue any payment, that is, it is free.

Presenting the contract, we formalize it in a Public Registry, certifying it for future eventualities. If we did not, the future proof of its existence could be more complicated.

What is all this done for? Well, the answer is simple. If a person is going to read a significant amount of money (recommended from $ 3,000 although it is not a requirement), they will want to be guaranteed in a document the return of the same. Without this written contract, we would face a complicated verbal contract to prove. So the first reason should be to ensure the operation between the parties.

But there are more things to consider when a contract like this occurs. Is it a covert donation? What tax consequences does it have? In a future article we will answer those questions.