The objective of a medium-term loan is identical to that of roll-over credit or operating and capital leasing, i.e. using a bank loan to finance investments in standard tangible and intangible assets, thereby allowing for the creation, improvement or development of a business activity.
Objective: it is used, inter alia, to finance the fitting out of offices/showrooms/production areas/storage buildings, production tools, machinery, vehicles, intangible assets (business assets, patents, licences) and sometimes the late payment of fiscal payables (taxes, social security contributions).
Who is concerned
Available to the self-employed and any type of business, a medium-term loan applies in the following cases:
- creation of a business;
- acquisition or merger of companies;
- going from being a lessee to owner of a property;
- development and modernisation of the business and making the business profitable;
- refinancing intangible or movable assets or stock with bank debt to free up owned capital for other investments.
Documentation or description of the business
- copy of the company’s articles of association;
- group structure if the company is part of a more complex group;
- last 3 audited balance sheets of the borrower and, if applicable, the latest available trial balance;
- recent supporting documentation regarding VAT, tax and social security situations;
- order book (where applicable);
- list of customers and their relative contribution to turnover;
- list of suppliers;
- forecast balance sheet or business plan in the case of a new business activity or a major expansion plan.
Presentation of the project
- detailed description (including figures) of the planned investment and, where applicable, a market study;
- financing plan;
- calculation of feasibility and return and calculation of the breakeven point;
- machinery: list of investments, replacement of existing equipment, additional equipment, purchase orders or invoices;
- company: preliminary sale agreement, due diligence, audited accounts, etc.
The guarantees required by the bank before granting the loan are the solvency of the borrower and the profitability of the project to be financed. In addition, the bank will inform the beneficiary of the medium-term loan of the tangible, personal or moral guarantees deemed necessary to guarantee the loan granted.
The most common guarantees requested for a medium-term loan are:
- mortgage registration;
- pledge on business assets;
- surety of the parent company or partners/shareholders;
- various moral guarantees.
When the partners/shareholders of a business have to stand surety for the company, the bank should be provided with the details of their financial situation.
How to proceed
Duration and amount
- between 18 and 60 months (depending on the amortisation period of the asset to be financed).
As a general rule, financing of 70 % to 80 % of the value to be financed.
- interest rate depending on the quality of the client, the project and the guarantees offered;
- fixed or variable rate;
Repayment depends on different criteria, including, for example, the amount, the rate, the amortisation period of the asset to be financed, etc.
- monthly repayment or, more rarely, quarterly, half-yearly or annual;
- generally as a constant annuity (repayment of the same amount each time, where the proportion of principal and interest varies).
The reviewing and processing times depend on the complexity, size and urgency of the case.
Advantages, disadvantages and risks
- can be used to prevent cash deficits caused by financing investments with working capital;
- flexible financing with a repayment plan adapted to cash flow;
- possibility of refinancing assets (movable assets, stock) or liabilities (e.g. fiscal payables);
- progressive use depending on the payment terms and conditions and interest only calculated on the portion actually used.
- Interest rate
- fixed rate: early repayment penalty to be paid;
- variable rate: no protection against the risk of interest rate increases;
- assets purchased are immediately entered in the accounts as fixed assets;
- strict repayment plan to be complied with;
- guarantees to be provided to the bank.
- indebtedness of the company if the profitability analysis turns out to be too optimistic;
- obsolescence of standard assets, especially technical equipment or vehicle fleet.
|5 years||10 years|
Amount of investment loan
Duration of loan
|5 years||8 years|
Indicative variable rate
|5.00 %||5.00 %|
Constant quarterly capital repayment
Interest due on the 1st quarterly repayment date