Dmac_

Hi everyone,
A colleague is getting a new company off the ground and I'd like to loan said company money, with interest repayable after a few years.
Does anyone have any recommendations for an expert who deals in this cross-border stuff to look at the agreement and give it the OK?
Anyone done this, or anything similar? As far as I can tell, the eventual interest will just be treatred like any other form of income for US tax purposes.

Pulaski

You need to agree which country's laws apply, then consult a lawyer in that country. That is how loans, and securities in general work - if you buy a bond (lend money to a corporation) in London, then English law applies, but if you buy a bond in NY, then Delaware law applies, even if the borrowing corporation is British.

Dmac_

Thanks Pulaski, that was one of my fears... I've seen these online "build an agreement" forms that ask "where do you live", and the concept of US-UK relations doesn't occur to them.

Pulaski

Yeah, there's no such thing as an international loan. The closest you would come is, per the example I mentioned of a company borrowing in foreign country, but such loans have to conform to local laws, so the loan isn't "international", with major financial centers having their own classes of bonds issued by foreign borrowers - bulldog bonds in London, Yankee bonds in the US, kangaroo bonds, maple bonds, samurai bonds, etc.

tht

You should probably also keep it in USD so your not exposed to FX risk and it may need to be reported on your FBAR..

Pulaski

And no doubt your advice to the borrower would be to borrow in local currency.

Personally, if I was lending money to a friend/ colleague, I would be a lot more concerned about the credit risk, the risk that I won't get repaid, than the FX risk, assuming the loan isn't in Turkish lira, Brazilian reals, or similar.

The reality is that a loan between two parties in countries using two different currencies (that aren't "pegged"), at least one of the parties will have FX risk. Be aware of it, understand it, but you don't need to be afraid of it.

If the loan is in GBP there is a fair chance that the loan currency will continue to strengthen, so the FX rate movement would be in the lenders favour, being repaid in more valuable currency than he lent.

tht

maybe, or it could weaken..


credit risk can be mitigated somewhat with a PG. but this sounds like a favor, not an investment so who knows… if the OP believes in the business an equity or convertible would likely have a better yield than a unsecured loan…

Dmac_

No, it's an investment first, favor second.

Actually, most of my income is in GBP, so it's in that currency already.