A forgivable loan, also called a soft second, is a form of loan in which its entirety, or a portion of it, can be forgiven or deferred for a period of time by the lender when certain conditions are met. It is more like a grant with conditions rather than a loan as in most cases the loan is forgiven if all the conditions are met. However, if the conditions are not met the loan has to be repaid usually with interest. It can be seen as an incentive for the borrower to perform or achieve a goal set by the lender.
Forgivable loans are sometimes used in the financial services industry to lure a financial advisor from one firm to another. For example, an advisor may be offered an incentive, structured as a four-year loan if he moves his book of business to the a firm. The loan is made up four equal annual payments, each of which is forgiven as they become due if the advisor continues to work for the firm.
- ^“Forgivable Loans”. New York Mortgage Coalition.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.