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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 12675
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a business with a virtually unlimited supply of cloud

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I have a business with a virtually unlimited supply of cloud based computing work. I also have a wholesale ability to purchase cloud based processing power.
I am looking to have a business model where people provide the business with 12 month microloans and we pay them back 10% of the loan amount monthly over 12 months (resulting in a return of 20% over the year).
So if someone let's me borrow $1000 for a year, I put that $1000 to work immediately and give them 12 repayments of $100 per month for 12 months.
I don't know enough about accounting to know if this violates and laws or anything. I know there is a lot of regulation. Does this type of arrangement violate any laws of S.E.C. or banking etc?

Hi. My name's Lane. I can help you here.

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I have a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

Please bear with me for a moment, while I prepare your response

No, there's very little regulation here, UNLESS the parties lending your business the money are in the business OF lending... they, then, will already be familiar with the OTC, IRS, state, and FDIC reporting obligations.

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Not UNLIKE those entities, individuals making these loan, although they will be making personal loans (to YOUR business), will be responsible to report the interest income on their return ... business entities would also report their interest on their respective business return.

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Interest must not be below market rates (IRS uses the Applicable Federal Rate to test for this). Interest income below the AFR will be imputed (taxed as if it WERE charged)

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you can find the AFR's here: https://apps.irs.gov/app/picklist/list/federalRates.html

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Best practice here would be to use an attorney licensed in your state to draft the loan agreement.

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But what's critical is that the loan document be in compliance with the contract laws of your state, and contain sufficient terms to make the contract binding and legal.

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Another way to get this done with SOME reasonable assurance is to use a service such as this:

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https://www.rocketlawyer.com/form/loan-agreement.rl#/

Finally, SEC does not apply here as this is not a public security.

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The law that will be applicable here (other than basic contract law) are the laws (lending laws) that are intended to protect the public.

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California's usury law, set forth in Article XV Section 1 of the California Constitution and codified in 10 different code sections, limits the amount of interest which can be charged on any loan, or forbearance, of money.

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Pursuant to California law, non-exempt lenders (the average individual) can charge a maximum of: (i) 10% interest per year (.8333% per month) for money, goods or things used primarily for personal, family or household purposes and (ii) for other types of loans (home improvement, home purchase, business purposes, etc.), the greater of 10% interest per year, or 5% plus the Federal Reserve Bank of San Francisco’s discount rate on the 25th day of the month preceding the earlier of the date the loan is contracted for, or executed. In other words, the general rule is that a non-exempt lender cannot charge more than 10% per year (.8333% per month), unless there is an applicable exemption.

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However, lending institutions, credit card companies are exempt ... and MOST important the code specifically exempts from lending laws if the purpose of the loan is primarily for something other than personal, family, or household purposes.

Please let me know if you have questions at all, before rating me.

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If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and clicking “submit").

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Thanks!

Lane

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I have a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

Lane and other Finance Specialists are ready to help you
Customer: replied 10 months ago.
Excellent thank you.