What is an Initial Loan Procurement (ILP)?

An Initial Loan Procurement (ILP) is an alternative fundraising mechanism, primarily used by startups and blockchain-based companies, that combines elements of traditional debt financing with modern digital crowdfunding principles.

Instead of selling speculative tokens like in Initial Coin Offerings (ICOs), a company raising funds through an ILP:

• Enters into a legal loan agreement with each investor.

• Receives capital (usually fiat or crypto) as a loan from investors.

• Commits to repay the loan over time with interest, as per pre-agreed terms.

• Often documents this using smart contracts for transparency and automation.

ILPs are structured more like debt instruments than equity or token-based crowdfunding.

This makes them more legally recognizable and compliant with financial regulations in many jurisdictions, especially compared to ICOs which often fall into regulatory grey areas.

Key Features of ILPs

• Legally Binding Contracts: Investors are lenders, not shareholders or token holders.

• Fixed Returns: Investors receive periodic interest, similar to bondholders.

• No Equity Dilution: Founders retain ownership without giving up company shares.

• Smart Contract Automation: Payments and agreements can be coded for transparency.

• Reduced Regulatory Risk: ILPs may fall under existing lending and debt laws, offering more regulatory clarity than ICOs.

Tax Implications of ILPs

The tax treatment of ILPs depends on the jurisdiction and whether you're a company raising funds or an investor lending money.

Here's a general overview:

For the Company (Borrower):

1. Loan Not Taxable as Income:

   • The funds raised via ILPs are considered loans, not income.

   • Therefore, they are not taxed as revenue when received.

2. Interest Payments Are Deductible:

   • Interest paid to investors is generally a tax-deductible expense, reducing the company’s taxable income.

3. Compliance & Reporting:

   • Companies must report outstanding loans and interest payments on their financial statements.

   • If using crypto, valuation and conversion rules may apply depending on local tax regulations.

4. Smart Contract Audits May Be Required:

   • In some jurisdictions, authorities may require verification of the underlying smart contracts used to execute ILP terms.

For the Investor (Lender):

1. Interest Income is Taxable:

   • Any interest received from the ILP is considered taxable income.

   • Must be reported in the investor's annual tax return.

   • If the loan is denominated in crypto, the value is converted into fiat at the time of receipt for tax purposes.

2. Capital Loss Treatment (if applicable):

   • If the company defaults and the investor incurs a loss, they may be able to claim a capital loss, subject to local rules.

   • If the loan becomes non-recoverable, a bad debt deduction might be available.

3. Crypto Denomination Considerations:

   • If loans or interest are paid in cryptocurrency, there could be additional tax events due to crypto price fluctuations at the time of each payment.

4. Cross-Border Lending Rules:

   • Tax treaties and withholding taxes may apply if the investor and company are in different countries.

Best Example:

Exploring the Markethive Founding Share Token and its Connection to the ILP

Within the intricate framework of the Markethive ecosystem, a fundamental component stands out as a driver of engagement and reward: the Markethive Founding Share Token (MFST).

This token is not merely a digital asset but a cornerstone of the platform's infrastructure, intrinsically linked to the revolutionary Initial Loan Procurement (ILP). 

More detail >> HERE

Conclusion

Initial Loan Procurements (ILPs) provide a more regulated and legally structured alternative to ICOs, allowing companies—especially in the blockchain space—to raise capital through loan agreements instead of token sales. From a tax perspective:

• Companies generally don't pay tax on the loaned amount but can deduct interest.

• Investors must report interest as taxable income and manage any crypto-related valuation rules.

• Both parties must comply with financial reporting and potentially securities or lending regulations depending on jurisdiction.

NB. Always consult with a tax advisor or legal professional familiar with fintech and blockchain regulations in your specific country before engaging in ILPs.

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About: Andries vanTonder

Over 46 years selfemployed 

He is a Serial Entrepreneur, an Enthusiastic supporter of Blockchain Technology and a Cryptocurrency Investor

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