How an investment fund can provide loans: conditions, limits, and statutory requirements

What the law means by a fund loan and who can provide it

The management of a special fund, a fund of qualified investors, or a comparable foreign fund may also include the acquisition of receivables from fund loans for the account of the fund and the management of special purpose vehicles in securitisation (Section 5 of the Act on Investment Companies and Investment Funds). A receivable from a fund loan is a receivable from a loan or credit agreement concluded for the account of the fund as creditor, or assigned to the fund, provided that the manager participated in structuring the loan or preliminary negotiation of its terms (Section 5(5)).

Therefore, the fund does not only have to buy the loan; it can provide it itself. The law addresses both paths: an agreement concluded by the fund as creditor, as well as an assigned receivable where the fund manager structured the loan. This is essential for funds that lend directly to companies: they fall under the same regime as funds that buy up loans.

The law also defines when a fund is a "loan-originating fund": when its investment strategy consists primarily of acquiring receivables from fund loans, or when the nominal value of these receivables represents at least 50% of its fund capital (Section 37i). Fund capital is not the same as the fund's capital from which the 20% limit is calculated: the law defines the latter as the sum of capital contributions and unpaid subscribed capital after deducting fees and expenses paid by investors (Section 20b(3)(b)). Therefore, it is necessary to consistently distinguish between these two figures in calculations.

One restriction applies to self-managed funds: neither a self-managed investment fund (Section 8(4)) nor an investment fund under Section 9(1) (Section 9(6)) may provide consumer credit. A manager of a special fund or a fund of qualified investors may manage a fund that administers consumer credit if permitted by its statute (Section 37f(1)), but providing and mediating consumer credit is not considered its management (Section 37f(4)). An overview of the permits required for managers is summarized in the text on permits for an investment company.

When the rules apply and when existing funds must adapt

The amendment to the Act on Investment Companies and Funds, Act No. 130/2026 Coll., introduces these rules into Part Two, Title VII. Under the version of the law effective from 1 September 2026, provisions on limits on a single debtor, prohibited debtors, and other requirements are already in the text (Sections 37c to 37k). The amendment follows, among other things, Directive (EU) 2024/927, in practice referred to as AIFMD II. However, some points of the amendment do not take effect until 16 April 2027.

Existing managers have six months to adjust their statutes and procedures. The manager must bring its affairs and the affairs of the managed funds, including the statute and key information documents, into compliance with, among others, Section 20b, Section 220(1)(i) and (m), and Section 241(1)(k) and (l) within six months of the amendment's effective date (Art. II, point 1 of Act No. 130/2026 Coll.). This also applies to funds established before 15 April 2024; their exemptions only cover Sections 37c, 37j, and 37k. Open-ended funds have until 16 April 2027 for liquidity management tools (point 2).

Special exemptions apply to loan-originating funds. A fund established before 15 April 2024 is deemed to comply with Sections 37c, 37j, and 37k until 16 April 2029, regardless of whether it raises new capital (point 3). If it does not raise additional capital after 15 April 2024, this fiction applies even after 2029 without any time limit (point 6). Therefore, a capital increase does not cancel the exemption immediately but limits it to the period until 16 April 2029.

For receivables acquired before 15 April 2024, the manager does not have to comply with Section 20b and Sections 37d to 37h (point 8). Receivables acquired by the fund after 14 April 2024 and no later than six months from the effective date of the amendment must be brought into compliance with Section 20b and Sections 37d to 37h by the manager within six months of the effective date (point 9). Therefore, not only the date of the fund's establishment but also the date of acquisition of each individual receivable is decisive.

A fund established after 14 April 2024 but before the effective date of the amendment must meet the closed-ended requirement under Section 37j within six months (point 4). For the 20% limit and leverage, a special regime applies until 16 April 2029 based on the status as of the effective date: if the fund exceeded the statutory limits at that time, it must not further increase the nominal value of receivables or the leverage ratio, and if it was below them, it may increase them at most to the statutory level (point 5).

However, the exemptions do not apply automatically. Point 7 allows the manager to apply the new rules voluntarily, provided they inform the ČNB in advance. For each fund, it is therefore necessary to determine when it was established, whether it raised additional capital after 15 April 2024, and which receivables it acquired earlier, as this determines which rules apply. A general overview of the amendment is summarized in the text on the amendment to ZISIF and AIFMD II.

20% capital limit, prohibited debtors, and consumer credit

The nominal value of receivables from fund loans to a single borrower or debtor must not in aggregate exceed 20% of the fund's capital if the debtor is a bank, financial institution, ancillary banking services undertaking, insurance company, reinsurance company, insurance holding company, European investment firm, mixed financial holding company, or investment fund (Section 37c of the Act). The limit applies from the date specified in the statute, at the latest 24 months from the first subscription, and ceases to apply upon liquidation (Section 37c(3)).

Therefore, the statute must specify the date from which the limit applies. In doing so, the manager takes into account the nature of the assets that the fund intends to use for investment (Section 37c(4)). The ČNB may, for reasons worthy of special consideration and upon submission of a justified investment plan, extend the 24-month period by a maximum of another 12 months (Section 37c(5)). The limit is temporarily suspended if the fund's capital increases or decreases, for a maximum of 12 months.

Furthermore, the law prohibits acquiring receivables from the fund manager, its employees and executives, the depositary, the administrator, persons delegated with activities, and members of the same consolidation group as the manager (Section 37d). An exception from the consolidation group applies to banks, insurance companies, and other institutions listed in Section 37c(1)(a) to (j) that do not lend to persons listed in (a) to (d). Revenues from receivables must be credited in full to the fund's account, after deducting permissible fees for the administration of receivables (Section 37e).

In practice, this leads to a simple rule: before every loan, the fund must verify who the debtor is and whether they belong to the prohibited circle. Connections to the manager or their group are easily overlooked, especially in companies where the manager or their employee holds a stake. Proper record-keeping of debtors and their connections is therefore essential; without it, limits cannot be monitored.

Closed-ended or open-ended fund and leverage

The manager of a loan-originating fund shall ensure that this fund is a closed-ended alternative investment fund. It may only be an open-ended fund if the manager demonstrates, upon request by the ČNB, that the liquidity risk management system is compatible with the investment strategy and redemption rules (Section 37j of the Act). For a loan fund, being closed-ended is therefore the rule, and being open-ended is an exception that must be justified.

Leverage has a hard cap. The leverage ratio of a loan-originating fund must not exceed 175% for an open-ended fund and 300% for a closed-ended fund, calculated using the commitment method (Section 37k(1) and (2)). A loan or credit provided to the fund by another person that is fully covered by their obligation to make a contribution to the fund or invest is not included in the exposure (Section 37k(3)). If the limit is exceeded, the manager shall take effective remedial action without undue delay (Section 37k(4)).

The leverage ratio is not just the volume of loans the fund takes out. According to the European regulation to which the law refers for the commitment method, it expresses the ratio of the fund's exposure to its net asset value, and derivatives and other instruments also enter into the exposure. Therefore, a 300% cap does not mean that the fund can borrow three times its equity from a bank. The actual space for debt financing must be calculated based on the specific portfolio.

Leverage limits do not apply to a fund that only acquires receivables from shareholder loans, provided that their nominal value does not in aggregate exceed 150% of the fund's capital (Section 37k(5)). A shareholder loan is a receivable from a company in which the fund holds at least 5% of the voting rights or share capital and which cannot be transferred without transferring this share (Section 20b(3)). For funds that finance their portfolio companies, this exception is often crucial.

The leverage cap also applies to funds that do not describe themselves as loan funds, which is why it is advisable to check the actual composition of the portfolio, not just the name of the fund. As soon as the nominal value of receivables reaches 50% of the fund capital, the fund becomes a loan-originating fund, and the closed-ended requirement and leverage cap will apply to it. Meanwhile, the 20% limit on financial debtors and the prohibition of receivables from related parties apply to every special fund and fund of qualified investors that acquires fund loans, even below this threshold (Sections 37c and 37d).

Assignment of loans: 5% retention and the prohibition of "originate-to-distribute"

The fund manager shall ensure that the fund retains 5% of the nominal value of each receivable from a fund loan that it has acquired and subsequently assigned to another party (Section 37h of the Act). The share is retained until maturity for loans with a maturity of up to 8 years, and for at least 8 years for others (Section 37h(2)). The law thus protects investors and the market from funds that originate loans solely to sell them on.

It is completely prohibited to manage a fund whose strategy is fully or partially focused on acquiring loans solely for the purpose of assignment. The prohibition under Section 37g thus concerns the "originate-to-distribute" model. The fund is allowed to assign loans, but it must retain a share, and it must be clear that they were not originated solely for sale.

There are four exceptions to the retention requirement: sale of assets during the liquidation of the fund, assignment necessary to comply with sanction measures or product requirements, assignment necessary to implement the investment strategy in the best interest of investors, and assignment triggered by an increased credit risk identified during risk management, of which the assignee is informed (Section 37h(3)). A manager relying on an exception must demonstrate its fulfillment upon request by the ČNB (Section 37h(4)).

This leads to a practical recommendation: exceptions should be documented at the moment they occur. The justification for assignment due to increased risk must be based on an analysis performed by the manager during due diligence or risk management, and the assignee must be demonstrably informed of the increased risk. Documents created retroactively are weak evidence during an audit.

What must be in the statute and internal procedures of the fund

The manager of a loan-originating fund shall establish and apply effective policies, procedures, and processes for acquiring receivables from fund loans, for assessing credit risk, and for managing and monitoring the loan portfolio, keeping them up to date and reviewing them at least once a year (Section 20b of the Act). This obligation does not apply to shareholder loans, provided that their nominal value does not in aggregate exceed 150% of the fund's capital (Section 20b(2)).

The statute must include information on fees, including fees for the administration of receivables. The statute must contain details of deductions, surcharges, fees, and costs borne by the investor, including their maximum amount, and permissible fees for the administration of receivables under Section 37e (Section 220(1)(i) and Section 241(1)(l)). Further details on the composition of the portfolio of acquired receivables and annual data on fees and costs are set out in Section 241(3)(b) to (e).

The statute also needs to reflect whether the fund administers consumer credit, as the manager may only manage such a fund if permitted by the statute under Section 37f(1). In addition, the statute determines the date from which the 20% capital limit applies. Under Section 22(3)(j), the fund manager must not act contrary to the statute, which is why it is important that the statute corresponds to the actual strategy.

The delegation of activities to another person under Section 5(2), i.e., the acquisition of receivables from fund loans, is governed by a special regime: the provisions on delegation under Sections 23 to 26 do not apply to these activities (Section 26a(3)).

Six steps from investment intent to the statute of a loan fund

The first step is to determine whether the fund qualifies as a "loan-originating fund". The manager calculates whether the strategy consists primarily of loans or whether their nominal value reaches 50% of the fund capital. The answer determines whether the closed-ended and leverage requirements apply. The second step is to find out when the fund was established, whether it raised additional capital after 15 April 2024, and when it acquired individual receivables.

The third step is to amend the statute. The statute must include details on fees for the administration of receivables, the date from which the 20% limit applies, and information on whether the fund administers consumer credit. The fourth step is to set up internal policies and procedures under Section 20b, including credit risk assessment and annual review. The fifth step is to establish records of debtors and their connections to the manager, depositary, and administrator.

The sixth step is to set up ongoing monitoring: tracking the 20% limit, leverage ratio, retained share in assigned loans, and transitional provision deadlines. Indeed, failing to ensure the limit, acquiring a receivable from a prohibited person, failing to credit revenues to the fund's account, violating the management ban, or failing to take corrective action when leverage is exceeded constitutes an offense (Section 599(1)(l) to (r)).

Having a single compliance officer who knows all the limits and deadlines also helps. For smaller managers, the greatest risk is usually not the limits themselves, but the fact that no one monitors when the fund's conditions change, for example, during a capital increase, after which an older fund can no longer rely on exemptions after 16 April 2029. Regular quarterly monitoring will reveal such changes in time. An overview of obligations towards the ČNB is summarized in the text on what regular reports and notifications the ČNB requires from an investment fund.

Four mistakes that loan fund managers make most often

The first mistake is underestimating the scope of prohibited debtors. The manager assumes that the prohibition only applies to themselves and overlooks employees, executives, delegated persons, or members of the consolidation group. A receivable from them is prohibited, and failing to ensure this prohibition is an offense. Prevention lies in keeping records of connections and conducting checks before every loan.

The second mistake is relying on a permanent exemption for older funds. A fund established before 15 April 2024 is deemed to comply with the 20% limit, closed-ended requirement, and leverage in any case until 16 April 2029. However, the exemption only applies permanently if the fund does not raise additional capital after 15 April 2024; otherwise, it must comply with the limits after 16 April 2029. Prevention lies in monitoring when the fund accepts new capital and taking the end of the exemption into account when planning the next subscription.

The third mistake is omitting the 5% retention in assigned loans. The manager assigns the entire loan without verifying whether an exception applies, and fails to demonstrate compliance with the conditions during a ČNB audit. The fourth mistake is a statute that does not correspond to the strategy: missing fees for the administration of receivables, the date of validity of the limit, or details on consumer credit. Therefore, the Prague-based legal team at ARROWS law firm starts by analyzing the fund's strategy and only then amends the statute.

Risks of fund lending activities without established rules

Final Summary

A fund of qualified investors or a special fund may provide or acquire loans, but from 1 September 2026, under strict rules. The article has shown that a 20% capital limit applies to selected debtors, that a loan-originating fund must in principle be closed-ended with leverage of up to 300%, and that it must retain 5% of the value of assigned loans.

For fund managers, this implies a clear procedure: first determine whether the fund falls under the lending regime and which transitional exemptions apply to it, then amend the statute and internal procedures, and only then conclude or acquire further loans. The reverse order leads to the fund violating limits or prohibited connections before the statute can even contain the prescribed information.

The Prague-based legal team at ARROWS law firm designs loan funds, amends statutes and key information documents, sets up internal procedures, and communicates with the ČNB. Write to us at consultation@arws.cz or review our service for contracts and negotiations.