Following the series of articles on offshore loans not guaranteed by the government, this article provides some legal points about making short-term loans – the most common type of loan due to its simplicity. However, it often brings businesses unnecessary legal risks during the implementation process.
What is a short-term offshore loan not guaranteed by the government?
It is understood as a loan that the borrower borrows from abroad in the form of self-borrowing and is solely responsible for repaying the debt to the foreign lender within 1 year or less. This term is determined based on the corresponding contents stated in the loan contract and its adjusted and amended annexes. In case the total term recorded in these documents exceeds 1 year (12 months), this loan will be considered a medium and long-term loan.
As a type of offshore loan not guaranteed by the government, the short-term offshore loan has some features similar to the medium and long-term loan. In particular, they include terms of the form of the loan contract (in writing); the currency used (agreed by the parties); the interest rate of the loan (agreed by the parties but may be controlled by relevant regulations) and the borrowing and repayment must be made through an appropriate bank account.
In addition, due to the difference in the duration, a short-term offshore loan also has some major differences compared to medium and long-term loans, for example, the purpose of using the loan and administrative procedures to be carried out with the competent authorities:
- Purpose of use: the borrower may not use this loan for medium and long-term purposes. Currently, the said concept has not yet been defined by any regulations, but based on practice, it can be understood that medium and long-term capital use is when this amount is used for investment and procurement of assets with a period of use, long-term holdings (from 12 months or more) such as investment in the procurement of equipment to serve as fixed assets of the investment project; buying, selling, investing in real estate construction, etc. Accordingly, companies should pay attention to this issue to ensure compliance with the law when performing short-term foreign loan(s).
- For administrative procedures: the registration procedure with the state bank is not required when executing the short-term offshore loan, the company only needs to meet the conditions required by the commercial bank where the account service is provided.
During the execution, companies should be aware of the expiration time of the loan to ensure a timely repayment. If the said time comes, but the borrower cannot afford to fulfill the payment obligation, companies must carry out the procedures for registration of loan conversion from short to medium and long term with the State Bank – at the branch where the companies are headquartered.
According to the regulations, the time to carry out the procedure for converting this loan is within 30 (thirty) days from the time of signing the agreement to extend the loan term (from a short-term foreign loan to medium and long-term). However, in fact, many companies have “not remembered” this milestone when performing the loan, which leads to unnecessary penalties.
Report on loan performance
Reporting obligation on loan performance is a “mandatory” obligation that all borrowers must perform with the State Bank. Accordingly, companies must submit the above report quarterly to the State Bank within the first 5 days of the first month of the next quarter. Regarding the form of submission, according to regulations, companies can choose between online submissions on the state bank’s system or direct ones. In addition, it is also necessary to pay attention to the sanctions that companies may face if they do not fulfill this obligation (a fine of up to VND 40,000,000).
Apart from the above notable points, companies also need to study and understand the relevant regulations governing the implementation of short-term offshore loans not guaranteed by the government to ensure compliance with the Law.