Since the passage of the Macron Law in 2015, intercompany loans have become a key financing tool in France. Historically available only to financial institutions, business lending is now available to professionals within the context of commercial relationships, offering a valuable alternative financing solution. Intercompany loans are, however, subject to strict regulations and must meet specific conditions. This can limit many companies from accessing these types of loans.

This article explains the concept of intercompany lending in France, its strict regulatory framework, the companies eligible to benefit from it, the conditions that must be met, and how to declare an intercompany loan.

What’s in this article?

• What is an intercompany loan?
  
• What is the purpose of an intercompany loan?
  
• What types of businesses are eligible for an intercompany loan?
  
• What terms apply to intercompany loans?
  
• Intercompany loan amounts
  
• Intercompany loan advantages
  
• Intercompany loan disadvantages
  
• Declaring intercompany loans
  
• How Stripe Capital can help
  

What is an intercompany loan?

An intercompany loan is short-term financing provided by one business to another with which it maintains an economic relationship. This type of loan enables a business facing a liquidity shortage to obtain cash without going through the traditional banking system.

Intercompany lending was introduced by Law No. 2015-990 of August 6, 2015, for Growth, Activity, and Equal Economic Opportunities, also known as the “Macron Law.” Its terms and conditions are set forth in Article R511-2-1-1 of the French Monetary and Financial Code. This law eased the historical banking monopoly—until that point, only credit institutions or financing companies were able to issue loans.

The objective of this new type of business loan was to encourage the circulation of cash between businesses that have commercial ties, and to allow financially sound businesses to support their commercial partners without having to use a bank as an intermediary. However, it is not meant to replace traditional credit.

Can one business lend money to another business?

Article 167 of the 2015 Macron Law authorizes two French companies that are not legally affiliated but are commercially related to enter into an intercompany short-term loan, provided they meet a set of strict requirements regarding eligibility, form, and amount.

What is the difference between an intercompany loan and intercompany credit?

An intercompany loan is a distinct form of financing between two commercially related companies, intended to meet a cash flow need, whereas intercompany credit refers to payment terms granted as part of normal business transactions.

What is the purpose of an intercompany loan?

An intercompany loan is a practical financing solution that takes place between two business partners when one has a cash surplus and the other needs financing. This mechanism makes it possible to access business supplies or opportunities and to strengthen the stability and continuity of the business relationship.

For example, a company might grant an €80,000 loan over 18 months to a business partner that needs quick access to cash to hire staff and increase inventory during a peak in activity.

What types of businesses are eligible for an intercompany loan?

Intercompany loans can be granted to microbusinesses, small and medium-sized enterprises (SMEs), and intermediate-sized enterprises (ISEs) with true economic ties to the lending business. Large companies cannot act as borrowers of intercompany loans.

The threshold for borrowing is defined in relation to a company’s annual revenue:

• Microbusinesses: Fewer than 10 employees and annual revenue of less than €2 million
  
• SMEs: Fewer than 250 employees and annual revenue of less than €50 million, or a total company value not greater than €43 million
  
• ISEs: From 250 to 4,999 employees and annual revenue of less than €1.5 billion, or a total company value not greater than €2 billion
  

What terms apply to intercompany loans?

Intercompany loans are subject to strict compliance with regard to the economic relationship between the two parties, the financial status of the businesses, and the terms of the loan.

True economic ties between two businesses

A true economic relationship must exist between the two businesses to be eligible for an intercompany loan. This relationship is recognized only as defined in Article R511-2-1-1 of the French Monetary and Financial Code:

• Both companies belong to the same economic interest group (EIG) or the same consortium awarded a public procurement contract.
  
• One of the two companies is currently receiving, or has received in the past two fiscal years, a government grant in connection with a single project involving both companies and, where applicable, other entities. This project must also meet certain criteria.
  
• The borrowing company, or a member of its group, is a direct or indirect subcontractor of the lending company.
  
• The lending company has granted the borrowing company, or a member of its group, a license to use a patent, trademark, or franchise.
  
• The lending company is a significant client of the borrowing company (or of a member of its group). In this case, the total value of goods and services acquired during the current fiscal year (or during the previous fiscal year) within the framework of the contractual relationship must be at least €500,000 or represent at least 5% of the annual revenue for the borrowing company (or a member of its group).
  
• The lending company is indirectly linked to the borrowing company through a third company, with which the two companies have an established business relationship as of the date of the loan (or during the fiscal year immediately preceding the loan date).
  

Terms specific to the lending business

The lending business must adhere to the following terms:

• It must be a commercial entity, e.g., a simplified joint-stock company (SAS), public limited company (SA), limited liability company (SARL), single-shareholder simplified joint-stock company (SASU), single-shareholder limited liability company (EURL).
  
• The accounts for its most recent fiscal year must have been certified by a statutory auditor, or the company must have voluntarily appointed a statutory auditor.
  
• The granting of intercompany loans must remain ancillary to the company’s principal business activity (Article L511-6, Paragraph 3 bis of the French Monetary and Financial Code)
  
• The two fiscal years preceding the loan must have been closed out under the following conditions: Equity that is greater than share capital, positive gross operating surplus, and positive net cash flow
  

Loan terms

Intercompany loans must also meet several conditions:

• Double cap on the loan amount (Article R511-2-1-2, no. 3 of the French Monetary and Financial Code).
  
• Term limited to three years.
  
• Be subject to a loan agreement that adheres to the regulations governing regulated agreements.
  
• Apply an interest rate that is greater than zero and does not exceed the applicable usury rate.
  
• Specify payment terms (principal and interest).
  
• Include an annual reporting of outstanding loan agreements by an independent auditor. In a statement attached to the management report, the auditor certifies the initial amount and the outstanding principal balance of each loan, as well as compliance with the provisions governing them.
  
• The loan cannot impose payment terms on a business partner that exceed the legal limits for intercompany credit (30 days, 45 days net, or 60 days).
  
• The loan cannot be transferred to a securitization entity.
  

Intercompany loan amounts

Intercompany loan amounts are subject to a double cap. This limits both the amounts that the lending company can lend and that a company can borrow. The first cap applies to the total amount in loans that the lending company can grant. The second applies to the amount in loans the borrowing company can receive.

Cap on loans made by the lending company

The total amount in loans that can be granted by a lending company varies, depending on its size (SME, ISE, or large company). For a fiscal year, the total amount cannot exceed the lesser of two amounts, as follows:

• SMEs: €10 million or 50% of the lending company’s net cash (or 10% calculated on a consolidated basis at the level of the group to which it belongs)
  
• ISEs: €50 million or 50% of the lending company’s net cash (or 10% of this amount calculated on a consolidated basis at the group level)
  
• Large companies: €100 million or 50% of the lending company’s net cash (or 10% of this amount calculated on a consolidated basis at the group level)
  

For example, if an SME’s net cash flow is €2 million, it can only loan €1 million to the borrowing company, even though there is a theoretical cap of €10 million.

Cap on loans available to the borrowing company

The total amount in loans that the borrowing company can receive from a single lending company during a fiscal year must not exceed the greater of the following two amounts:

• 5% of the cap applied to the lending company, i.e., a) 5% of €10 million, €50 million, or €100 million, or b) 5% of 50% of net cash flow
  
• 25% of the cap applied to the lending company, up to a limit of €10,000
  

Using the previous example of an SME lender whose net cash flow is €2 million, the borrowing company can receive a maximum of €50,000 (5% of the €1 million that the company is entitled to lend).

Intercompany loan advantages

Intercompany lending offers three main advantages: it’s an alternative source of financing, it allows for faster access to cash flow, and it strengthens relationships between business partners.

• Alternative source of financing
  Intercompany loans are an attractive source of financing for businesses experiencing low cash flow who do not wish to, or are unable to, use traditional financing options like cash advances or honor loans.

• Faster access to cash flow
  The steps needed to access an intercompany loan are typically easier than those for accessing traditional bank financing. An agreement between business partners is the basis for an intercompany loan, providing quicker access to funds. However, the contract must be thorough and address all required information: purpose, duration, amount, collateral, interest rate, repayment terms, etc.

• Improved business relations
  This type of loan strengthens the relationship between businesses and fosters closer long-term collaboration, benefiting both parties.

Intercompany loan disadvantages

Intercompany loans also have several disadvantages that can limit a company’s ability to use this type of financing. The main limitation lies in a particularly strict regulatory framework, and failure to comply with it can result in severe penalties.

• Capped amounts
  The amount of an intercompany loan is capped according to strict criteria and might not be high enough for companies with high cash flow needs.

• Inherent risk of lending
  Lending involves risk, and that risk can be greater when the entity providing the loan is not a professional lender. A lending company does not always have access to the necessary financial analysis tools to accurately evaluate a borrowing company’s ability for repayment, or the consequences of a loan that is so large it affects its own cash flow. This can weaken the lending company financially if the borrower does not repay the loan.

• Risk of dependency
  Intercompany loans are meant to respond to a genuine, one-time financial need and are not meant to become a regular activity or to be used as a recurring mechanism. In practice, a borrowing company that experiences multiple difficult financial periods can become dependent on one or more business partners. In addition, if loans are made too frequently, they could be reclassified as illegal banking activity and lead to criminal, administrative, and commercial penalties for the lender. Likewise, the lender must not use an intercompany loan to impose unfavorable commercial terms on a borrower. It should be noted that even if an agreement is found to be unlawful, the borrowing company must still repay the principal and interest.

• Potential sanctions
  If found to be unlawful—specifically if a loan is reclassified as illegal banking activity (e.g., due to no proof of economic ties between the companies, excessive frequency of loans)—the lending company could be subject to a penalty of three years in prison and a €375,000 fine (Article L571-3 of the French Monetary and Financial Code).

Declaring intercompany loans

Intercompany loans must be declared to the French corporate tax office (SIE) within one month of the loan agreement being executed. This declaration must include:

• The executed loan agreement
  
• The management report stating the amount of each loan granted
  
• The auditor’s certification verifying the loan amounts
  
• Cerfa form no. 2062 for declaring a loan agreement
  

How Stripe Capital can help

Stripe Capital offers revenue-based financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for a loan or merchant cash advance in minutes—without the lengthy application process and collateral requirements of traditional bank loans.
  
• Align financing with your revenue: Capital’s revenue-based structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn’t meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.
  
• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion, and more—without diluting your equity or personal assets.
  
• Use Stripe’s expertise: Capital provides custom financing solutions informed by Stripe’s deep expertise and payments data.
  

Learn more about how Stripe Capital can fuel your business growth, or get started today.