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Participation loan


A participation loan is a form of loan in which the investor invests in a company for a specific purpose. In return, the investor participates in the turnover or profit of the company.


Participation in economic success is agreed upon in advance between the company and the investor. An interest rate is possible but does not play a primary role, as the focus is on profit sharing. The interest agreement consists of a non-market interest rate and profit participation. Due to the flexibility of the interest rate, the company is not threatened by fixed interest payments in weak times. The lender then benefits more when the company achieves high profits. The contract period between the lender and the borrower is usually several years, as the success of a company often takes years to set in.

Due to its characteristics, the equity loan is considered a form of mezzanine capital. Mezzanine capital is a form of financing that is a mixture of debt and equity. There is often confusion between the equity loan and a silent partnership, which is also a form of mezzanine capital. Investors in a silent partnership have more rights and often share in the loss of the company. The investor in the equity loan, therefore, has no say in the company but does have control rights, such as the right to inspect the accounts of a company or project. Likewise, he does not bear any share in the company's losses. Participation loans can be terminated by a joint agreement, by a regulated expiry, by insolvency or death of one of the contracting parties as well as by ordinary termination.

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