The definition of Back to Back Loan

Back to back loan is where the parent company deposits money in the host country’s bank,
which then lends money to subsidiaries in the host country. A back-to-back loan is very
convenient for a company that needs money in a currency that is very unstable. When
companies engage in back-to-back loans, they usually agree on a fixed spot exchange rate,
usually the current one. This eliminates the risk associated with the volatility of exchange
rates because the companies are repaying their loans based on the agreed-upon fixed rate.

When doing international business, back-to-back loan is often the only option to finance
operations abroad because basically, back to back loan it’s a pre-paid loan (pre-payment done by
parent company) to helps establish credit history and avoid some of difficulties that often occur
in cross border money transfers.

Definisi Back to Back Loan

Back to back loan adalah di mana perusahaan induk mendepositokan uang di bank negara
tuan rumah (host country), yang kemudian meminjamkan uang untuk anak perusahaan di
negara tuan rumah. Ketika melakukan bisnis internasional, back to back loan sering menjadi
satu-satunya pilihan untuk membiayai operasional di luar negeri karena pada dasarnya, back
to back loan ini adalah pinjaman prabayar (pembayaran di muka yang dilakukan oleh
perusahaan induk) untuk membantu membangun kredit history dan menghindari beberapa
kesulitan yang sering terjadi dalam transfer uang lintas batas.

This is the process of Back to back lone in Mexican parent Company

To avoid currency or exchange risk, companies look for other companies in another country
and engage in back-to-back lending.

1. Mexican parent Company deposits pesos in U.S. Banks branch in Mexico.

2. U.S. Bank’s house office lends dollar to Mexican’s company subsidiary in the U.S
(host country)
3. Mexican subsidiary repays the dollar loan
4. Mexican parent company withdraws peso deposit plus interest from U.S. Bank’s
branch in Mexico
Proses Back to back lone pada Mexican parent Company

1. Induk perusahaan Meksiko mendepositokan peso di cabang Bank AS di Meksiko.

2. Kantor Bank AS meminjamkan dolar untuk anak perusahaan Meksiko di U. S (negara
tuan rumah)
3. anak perusahaan Meksiko membayar pinjaman dolar tersebut
4. perusahaan induk Meksiko menarik deposito peso ditambah bunga dari cabang Bank
AS di Meksiko