The Loan Agreement
WHAT YOU NEED TO KNOW WHEN LENDING MONEY
Despite the many merchants providing fast loans in Bulgaria, lending money is not just a commercial activity. Very often loans are given between relatives and friends to cover sudden needs or for other reasons.
IS A WRITTEN LOAN AGREEMENT REQUIRED?
A loan agreement is an informal contract, therefore it can be concluded in any form. The loan agreement is considered concluded when the lender hands over to the borrower money or other fungible items and the borrower undertakes to return the borrowed amount or items of the same type, quantity, and quality.
If there is no handover of the money, there is a promise of a loan, and if there is no agreement from the borrower to return the borrowed amount, then the given is without justification.
HOW THE LOAN AGREEMENT IS PROVEN
Oral loan agreements are proved to the court by witness statements, but only when the borrowed amount is up to BGN 5,000.
When the borrowed amount is over BGN 5,000, the loan agreement must be concluded in writing. The written form for such an amount is not a requirement for validity but for proof of the concluded contract.
It is important to know that if the borrowed amount is over BGN 10,000, it must pass from the lender to the borrower by bank transfer. Otherwise, the parties are liable administratively under the Limitation of Cash Payments Act. The violation is established by the NRA, and the penalty amounts to 25% of the total amount of the payment made.
When the transfer of the borrowed amount is not by bank transfer, it is good to have a receipt from the borrower for its receipt. When the receipt for the handing over of the amount also contains an acknowledgment by the borrower of the assumed obligation to return the amount within a certain period, the receipt may replace the written loan agreement.
WHAT THE WRITTEN LOAN AGREEMENT CONTAINS
The written contract must contain an identification of the parties, the amount of the borrowed amount, the term and method of its return, and the amount of the installments if any, penalties for non-performance. The parties may agree on remunerative interest for the use of the borrowed amount, but it is not mandatory.
The loan agreement may provide some security for the lender in the form of a surety by another natural person or the issuance of a promissory note by the borrower for the borrowed amount.
TAX ASPECTS OF THE LOAN AGREEMENT
In some cases, cash loans received or granted are subject to declaration in the annual tax return of individuals, which are considered local persons under the Natural Persons Income Taxes Act.
If you received a loan during the year from an individual or non-banking institution, you declare if:
- the total amount of all cash loans received during the year exceeds BGN 10,000 and as of December 31 of that year a portion of them were outstanding;
- As of December 31 of the year, the total amount of outstanding amounts under all cash loans received in the same and the previous 5 years exceeds BGN 40,000.
If you have provided a loan, you declare it if:
- the total amount of all cash loans granted during the year exceeds BGN 10,000. and as of December 31 of that year a portion of them were outstanding;
- As of December 31 of the year, the total amount of outstanding amounts under all cash loans granted in the same and the previous 5 years exceeds BGN 40,000.
The term for declaring loans is from 10 January to 30 April of the following year.
If the loan agreement has agreed interest and the borrower is not an enterprise or a self-employed person, the lender must declare the interest income and pay the tax due by April 30 of the following year.
LOAN AGREEMENT DISPUTES
If the borrowed amount is not returned within the agreed period, the lender must apply to the competent court and file a civil lawsuit.
If your contract is concluded with notary-certified signatures or the borrower has issued a promissory note under the loan agreement as collateral, the lender can use an abridged procedure and ask the court to issue an Order for immediate execution on the grounds of Article 417 CPC.
If the contract is oral or written without the notary certification of the signatures, then you must file a claim and prove the delivery of the amount to the debtor.
In the civil case, the burden of proof related to the delivery of the borrowed funds is on the plaintiff claiming their return. The respondent-borrower must prove his objections. He may dispute that he is not the author of the signature on the presented loan agreement or the receipt, he may argue as well that the funds are given on another ground, or that the obligation has been extinguished.