The profit participating loan is a special form of a loan. The lender receives a participation in the profits or turnover of the company in return for the provision of capital. This participation can be confined to the purpose for which the loan was provided or pertain to the whole business of the company. Additionally, fixed interest payments can be included in the contract.

The profit participating loan differs from a silent participation particularly by the fact that the lender does not hold a stake or share in the company. He cannot influence the company’s business and does not participate in the company’s losses.

The profit participating loan has the advantage over other methods of investment, that it can be sold publicly without a formal sales prospectus. Therefore the company seeking capital does not have to bear the delay caused by the preparation of the prospectus and the subsequent admission procedure of BaFin. If the profit participating loan is structured accordingly, a permission in accordance with § 32 KWG is not necessary for the sale and distribution of the loan, but rather a permission pursuant to § 34c Gewerbeordnung (German law regarding the regulation of trade, commerce and industry) is sufficient. 

The profit participating loan is an investment model with a simple structure which can be implemented in a quick and cost-efficient way. It is therefore also suited as bridge-financing for an intended IPO.