Loans vs. Bonds: What Are the Differences?
In June 2023, Raizers obtained approval as a crowdfunding service provider ( “PSFP” ). As such, RAIZERS is now authorized to provide financing to operators in two ways: through the issuance of bonds or by granting loans.
What is loan facilitation?
The facilitation of lending, as newly authorized by Regulation (EU) 2020/1503 of the European Parliament and of the Council of October 7, 2020, on European crowdfunding service providers for entrepreneurs, is part of the European Union’s objective to “facilitate the matching of potential investors or lenders with entrepreneurs seeking financing”*.
The Regulations define a loan as follows: “a contract under which an investor makes an agreed-upon sum of money available to a project sponsor for an agreed-upon period, and under which the project sponsor undertakes an unconditional obligation to repay that sum to the investor, with accrued interest, in accordance with the amortization schedule”**.
Please note that the type of loan offered on the RAIZERS platform is a “simple” loan as defined by the French Civil Code***. It is not a form of crowdfunding involving investment in securities, such as bonds.
In accordance with the Regulations, RAIZERS provides its investors with specific details regarding crowdfunding through loans. This information is contained in the Key Investment Information Document ( “FICI” ) available for each transaction. The document includes, in particular, a section titled “Loan Disclosures” specifying the terms of the loan, the applicable interest rate, risk mitigation measures, the repayment schedule, and so on.
How does this differ from a bond offering?
The loan agreement signed by the project sponsor with the investor group is very similar to the bond issuance agreement typically presented on the RAIZERS platform. In particular, RAIZERS is authorized by the pool of investors to represent them throughout the transaction; investors can subscribe to loan tranches of 1,000 euros and sign a subscription form containing an amortization schedule.
What kind of tax system?
The tax treatment applicable to interest received from loan investments is the same as that for investment income, just as it is for interest received from bond issuances. Individuals and corporations are therefore subject to the same tax treatment, regardless of whether they invest in loans or bonds.
In conclusion, crowdfunding through loans does not entail any major changes for investors accustomed to subscribing to bonds. Above all, it helps meet the financing needs of real estate operators, the vast majority of which are organized as limited liability companies (SARLs)—a corporate structure for which the conditions for issuing bonds are very restrictive.
* Recital (1) of the Regulation.
** Article 2 of the Regulations.
*** Article 1892 of the Civil Code.