Group company borrowing explained

Which company should borrow

In a group, the borrowing usually sits where the need and the security are. A trading subsidiary funding stock borrows in its own name; a holding company funding an acquisition may borrow at the top. Each is a separate legal entity, so the debt belongs to whichever company signs — a point that matters if one part of the group struggles.

Parent and cross guarantees

Lenders often want more comfort than one company alone provides, so they ask the parent to guarantee a subsidiary's loan, or for cross-guarantees across the group. That links the companies' fortunes: a default in one can pull in the others. It can unlock funding, but it also spreads risk that limited liability would otherwise contain. Read any guarantee carefully.

Moving cash with intercompany loans

Groups shift funding internally through intercompany loans — the company with cash lends to the one that needs it. Done properly, with documented terms and a commercial rate where required, this is efficient. Done casually it invites tax and transfer-pricing questions. Treat internal lending with the same rigour as external.

Where external funding still fits

Internal shuffling only goes so far — sometimes the group genuinely needs outside money. External borrowing brings fresh cash without draining one company to prop up another, and keeps each entity's position clean. Credicorp lends to the company, not to individuals, and takes no personal guarantee, so a subsidiary can fund itself without a director's home on the line. Size the need with the working capital calculator.

Keep the group's records straight

The discipline that makes group borrowing safe is clean records: know which company owes what, document every intercompany balance, and keep guarantees visible on each company's contingent liabilities. Muddled inter-company debt is where groups get into trouble. See how to read a balance sheet.