How to Invest Your Company's Cash Reserves During a Crisis?

Why Non-Interest-Bearing Cash Reserves Can Lose Value

Cash left in a non-interest-bearing current account generates no income for the company. Even when inflation slows, it leads to a gradual decrease in the real value of cash holdings.

For example, an annual inflation rate of 2% represents a theoretical loss of purchasing power of about 2,000 euros on a sum of 100,000 euros kept for a year without earning interest.

This observation does not mean all cash should be invested. A company must retain the liquidity necessary for paying expenses, tax and social security obligations, investments, and any unexpected events. Only the portion that is consistently surplus can be considered for longer-term investment.

Seven At Home Targets Companies' Excess Cash Reserves

Seven At Home offers companies and professionals the opportunity to invest a portion of their cash reserves in real estate operations involving purchase, renovation, and resale.

The company, which presents itself as the leading real estate club deal in France, particularly targets SAS, SARL, SCI, holding companies, and freelance professionals. The minimum investment amount stated is 10,000 euros.

Seven At Home's strategy is based on financing real estate operations that it directly selects and structures. According to information provided by the company, investors subscribe to bonds issued by the companies managing the projects.

Therefore, Seven At Home should not be equated with a bank account, a real estate investment trust (REIT), or a guaranteed cash investment. It is a bond investment that depends on the success of the financed real estate operations.

High Target Yield in Exchange for Risk of Loss

Seven At Home announces a target return of up to 15% per year, depending on the proposed operations. This return is not guaranteed and depends on various factors such as the successful completion of the work, adherence to budgets and deadlines, and the resale conditions of the properties.

The company indicates offering investment durations of 6, 12, 18, or 24 months. However, the funds remain immobilized for the planned duration, and their repayment could be delayed if the operation encounters difficulties.

The announced return level should therefore be assessed in light of the risk involved. In the event of project failure or a default by the issuing company, the investor could suffer a partial or total loss of the capital invested.

This type of instrument can only reasonably involve the portion of liquidity that the company will not need to finance its operations throughout the duration of the investment.

A Model Different from Traditional Crowdfunding Platforms

Seven At Home positions itself as a real estate operator and developer of its own projects, rather than as an intermediary connecting investors with independent developers.

This distinction is important from a regulatory standpoint. The company does not present itself as a crowdfunding service provider approved by the AMF. It indicates that it relies on the legal framework applicable to private placements and bond issues benefiting from a prospectus exemption.

The absence of PSFP approval does not necessarily imply that the activity is irregular. The applicable regime depends on how the securities are issued, marketed, and offered to investors.

According to Seven At Home, financial transactions are managed by Lemonway, a licensed payment institution. However, this license concerns the technical management of payments. It does not guarantee the profitability of projects, the payment of interest, or the reimbursement of capital.

How Seven At Home Compares to Traditional Investments

Seven At Home does not meet the same objectives as the most secure cash management investments.

Term accounts offer a predetermined return and capital repayment at maturity, subject to contract conditions and the solvency of the banking institution. Their yield is generally lower than that announced by Seven At Home, but their risk level is also lower.

Money market mutual funds (OPCVM) typically provide significant liquidity and performance linked to money market rates. Their capital is not formally guaranteed, but they invest in short-term instruments and usually exhibit limited volatility.

Capitalization contracts allow eligible legal entities to invest in euro funds and unit-linked products. Their return and risk level vary greatly depending on the selected investments.

The investment offered by Seven At Home aims for a significantly higher performance but involves the immobilization of funds, real estate risk, credit risk, and the potential for capital loss.

Therefore, comparisons should not be based solely on the announced rate. They should consider liquidity, potential capital guarantee, investment duration, and the actual risk of non-repayment.

What Are the Tax Implications for Businesses?

Interest paid to a company on a bond subscription is generally recorded as financial income in its income statement.

It is included in the taxable income and is subject to corporate tax according to the applicable tax regime for the company. It does not constitute dividends.

However, the precise accounting treatment depends on the characteristics of the issuance, the accrual date of the interest, and the potential existence of a repayment risk.

Prior to any subscription, the company should send its accountant the contractual documents, the conditions of the bond issuance, and information related to the project company.

Key Factors to Consider Before Investing

Before subscribing, the manager must examine each operation individually. The yield announced on the platform level is not enough to assess the specific risk of a project.

It is particularly important to verify:

• the identity of the company issuing the bonds;
• the location and nature of the real estate property;
• the purchase price and construction budget;
• the resale value considered in the financial scenario;
• the level of indebtedness of the operation;
• the contribution made by Seven At Home;
• the guarantees or securities provided to investors;
• the repayment rank of the bonds;
• the conditions for extension or early repayment;
• the history of redeemed, delayed, or problematic projects.

The documentation should also specify the fees directly or indirectly borne by the operation, even when the platform claims there are no entry or management fees for the investor.

A Solution Reserved for Truly Available Cash Reserves

Seven At Home can be a diversification option for a company seeking a potentially higher return than traditional investments and willing to accept, in return, the immobilization of funds and a risk of loss.

This solution, however, cannot replace the cash needed for the daily operations of the company. It must remain limited to a pocket of sustainably surplus funds, whose unavailability or potential loss would not endanger the business activity.

In times of crisis, the highest return is not necessarily the best criterion for choice. The decision should be based on a balance between fund availability, the solidity of the real estate project, the legal framework of the investment, and the company's financial capacity to withstand an unfavorable scenario.

Contenu conçu et proposé par Brisbane Media. La rédaction n'a pas participé à la réalisation de cet article.