Can A Us Citizen Borrow Money From Overseas

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How to Borrow Money from Abroad

All business, big or small, operating at a local level or an international level, need funding at some point or another to either sustain the business or extend it. Today, with blurring border lines and globalisation, people are looking at foreign investors for business funding.

One main reason for not raising capital within the country is the relatively higher rate of interests. Where a business can get a soft loan from an overseas investor with a fixed interest rate as low as 2.75% per annum, borrowing from within the country appear to be less feasible. Borrowing money from aboard can also be done through foreign direct investment.

Foreign direct investment or FDI is when a foreign investor invests in a business based in another country. Big business tend to lean towards this option because FDI equity inflows do not create any debt. There is no debt because FDI is not merely the transfer of funds, but it is based on the notion of a lasting interest. Therefore, under FDI, a foreign investor is given a minimum of 10 per cent voting rights in the company as controlling ownership.

A company can get a soft loan through two routes- the automatic route and the government route:

Automatic Route: Under the automatic route, the borrower can get a loan from a foreign entity without a prior approval from the Reserve Bank of India. However, here the loan agreement has to be registered with the RBI.
Approval Route: Under the approval route, in order to get a loan from a foreign entity, the borrower is required to submit an application with the RBI in the prescribed form through authorized dealer as specified by the RBI.

There are mainly three of types of investors: