Exemption from California Usury Law

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Subject Author Date Exemption from California Usury Law W 10-09-2009  Re: Exemption from California Usury Law Stuart A. Bronstein 10-09-2009
Posted by W on October 9, 2009, 11:39 am Please log in for more thread options California has a usury law that limits loans from an unregulated lender to a discount rate + 5%, and never lower than 10%. The first question is does this interest need to be simple interest or can it be compounding? Second, California Section 25118 establishes exemptions to the usury law for startup companies. If for example the loan or line of credit is $300K or more, and if you have a pre-existing business or personal relationship with the lender, and if the proceeds are for business use not personal, you can be exempt from the usury law. In the case where the exemption applies, is there a requirement that the loan be simple interest? In the case the exemption applies is there any limitation on the maximum interest rate? -- W -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Stuart A. Bronstein on October 9, 2009, 12:34 pm Please log in for more thread options > California has a usury law that limits loans from an unregulated > lender to a discount rate + 5%, and never lower than 10%. The > first question is does this interest need to be simple interest > or can it be compounding? This is more a legal question than a tax one. But let's see if I can help. First of all California usury puts an upper limit on interest. So your statement, "never lower than 10%" does not mean that interest under 10% can't be charged. It only means that the maximum allowable interest won't be under 10%. As I recall compound interest is allowed, though I haven't researched this issue in quite some time. > Second, California Section 25118 establishes exemptions to the > usury law for startup companies. If for example the loan or > line of credit is $300K or more, and if you have a pre-existing > business or personal relationship with the lender, and if the > proceeds are for business use not personal, you can be exempt > from the usury law. In the case where the exemption applies, > is there a requirement that the loan be simple interest? In > the case the exemption applies is there any limitation on the > maximum interest rate? When it is not otherwise stated, interest is simple interest. But there is no restriction against having compound interest in California law that I am aware of. -- Stu http://downtoearthlawyer.com -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted tax treaty exemption February 14, 2007, 10:18 pm GST Lifetime Exemption April 27, 2006, 12:09 am 1040EZ exemption July 19, 2008, 12:55 am exemption trust October 18, 2008, 2:12 pm Foreign Spouse Exemption April 18, 2007, 1:57 am Home sale exemption? ? ? August 14, 2009, 6:34 pm Sale of Main Home - $500,000 Exemption November 15, 2006, 10:06 pm Divorce decree exemption election January 26, 2008, 2:41 pm Personal exemption for deceased spouse April 21, 2008, 11:29 am depreciation recapture and the homeowners exemption July 30, 2008, 11:16 pm