Accounting for a loan of honor

For best accountancy training Best school of accountancy In Pakistan. Some promoters of business start-ups or business takeovers can be granted a loan on favorable terms (reduced interest rates, no guarantee, etc.). This loan, called loan of honor, generates special accounting entries.

The loan of honor in a few words

To understand the accounting treatment of the loan of honor, it is necessary first of all to know the main principles and to master the ins and outs.

The first characteristic (and the most important in the accounting sense) is that it is a personal loan. It is therefore granted to the project owner himself (the entrepreneur, the entrepreneur or the manager of a company having less than 3 years of existence) and not to its future structure. Reimbursement will be provided by the project holder directly.

This is a "boost" for people who do not have enough personal input to start their project. It provides leverage to the extent that it facilitates access to complementary traditional bank financing. On the other hand, it credibilizes the file of creation or resumption.

The conditions to benefit from a loan of honor are set by the body that proposes it. The same reasoning for the amount of the loan (it varies between 2,000 Euros and 50,000 Euros in practice). However, the loan is granted only after a jury decides whether or not to select the project and thus to grant the loan.