Final answer:
An intercompany loan, also known as an intra-group loan, refers to a loan between a parent company and its subsidiary channeled through a financial intermediary, such as a large international bank. The financial intermediary acts as a facilitator in transferring the funds between the parent and subsidiary. This type of loan allows the parent company to provide financial support to its subsidiary while maintaining control over the lending process.
Step-by-step explanation:
When a loan is issued between a parent company and its subsidiary through a financial intermediary, typically a large international bank, it is referred to as an intercompany loan or intra-group loan. This type of loan allows the parent company to provide funding to its subsidiary while maintaining control over the lending process. The financial intermediary, such as a bank, acts as a facilitator by transferring the funds between the parent and subsidiary.
For example, let's say Company A is the parent company and Company B is its subsidiary. Company A wants to provide financial support to Company B, but instead of directly giving a loan, it approaches a bank as an intermediary. The bank then channels the loan from Company A to Company B, ensuring transparency and legal compliance.
Intercompany loans can be beneficial for both the parent company and the subsidiary. The parent company can support the subsidiary's growth, and the subsidiary can access funding that may not be available through other sources. However, it's important to note that intercompany loans should be carefully managed to avoid conflicts of interest and ensure proper documentation and repayment terms.