Medium or long-term loan to finance movable or immovable assets

An investment loan is a form of credit with a very wide range of uses. Its objective is to finance, over the medium and long-term, long-term investments in either movable or immovable assets to be used in the creation, improvement or development of a business activity.

Who is concerned

Investment loans can be used by any business to finance the acquisition of land, industrial buildings, storage buildings, production tools, machinery, vehicles and intangible assets (such as business assets, patents, licences, etc.).

Available to the self-employed, a medium or long-term investment 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;
  • acquisition of land and/or buildings;
  • development and modernisation of the business and making the business profitable;
  • refinancing movable or immovable assets with bank debt to free up capital for other investments.

Prerequisites

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;
  • 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;
  • appendices:
    • land: preliminary sale agreement, cadastral map, building permit;
    • building: preliminary sale agreement, construction plan, building permit, specifications, quotes, photos (if any), lease, etc.;
    • machinery: list of investments, replacement of existing equipment, additional equipment, purchase orders or invoices;
    • company: preliminary sale agreement, due diligence, audited accounts, etc.;

Guarantees

The guarantee required by all banks before granting a loan is 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 or long-term loan of the tangible, personal or moral guarantees deemed necessary to guarantee the loan granted.

The most common guarantees requested for an investment loan are:

  • mortgage registration;
  • mortgage mandate;
  • pledge on business assets;
  • assignment of rental income;
  • assignment of a fire insurance policy (for a building);
  • 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

Duration

  • medium to long-term;
  • between 3 and 15 years (depending on the amortisation period of the asset to be financed).

Amount

As a general rule, financing of 70 % to 80 % of the value to be financed.

Interest rate

  • interest rate depending on the quality of the client, the project and the guarantees offered;
  • fixed or variable rate;

Repayment

Repayment depends on different criteria, including, for example, the amount, the rate, the amortisation period of the asset to be financed, etc.

  • constant annuity (repayment of the same amount each time, where the proportion of principal and interest varies), or;
  • constant amortisation (repayment of the same portion of the principal each time and varying amounts of interest);
  • monthly, quarterly, semi-annual or annual repayment.

Set-up time

The reviewing and processing times depend on the complexity, size and urgency of the case.

Advantages, disadvantages and risks

Advantages

  • financing of significant medium and long-term investments which could not be carried out with capital alone;
  • large choice in terms of the different parameters of the loan;
  • possibility of repayment holidays so as to reduce the repayment amount, e.g. interest only payments for the first 2 years;
  • progressive use depending on the payment terms and conditions and interest only calculated on the portion actually used.
  • debit interest is tax deductible, allowing the taxable amount to be reduced and therefore less tax to be paid.

Disadvantages

  • Interest rate
    • fixed rate: early repayment penalty to be paid;
    • variable rate: no protection against the risk of interest rate increases;
  • guarantees may need to be provided to the bank;

Risk

Risk of the company becoming over-indebted if the profitability analysis was not carried out meticulously.

 

Example

Purpose

Building Machinery
Expected life

20 years

7 years

Investment amount

2,000,000

500,000

Amount of investment loan

1,600,000

400,000

Duration of loan

15 years

5 years

Indicative variable rate

5 %

6 %

Monthly repayment (capital & interest)

12,650

7,740

 

Who to contact

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