Private creditor test – assessment of financing terms by public entities
What is the private creditor test?
The private creditor test is an analysis designed to determine whether a public entity (e.g. a local government unit or a state-owned legal entity) would grant a loan, guarantee or other financial support on the same terms as those offered by a private creditor operating in the market. This test aims to ensure that financing provided by public institutions does not distort competition in the market and does not constitute unlawful state aid.
The private creditor test is consistent with European Commission guidelines and makes it possible to assess whether financing terms are consistent with what the private financial sector would be willing to offer.
When is the private creditor test carried out?
- granting loans, guarantees or sureties by a public entity on terms deviating from market conditions,
- debt restructuring, including debt-to-equity swaps,
- settlements under option agreements, including changes to credit terms between related parties,
- assessing whether the financing terms are consistent with the behaviour of a private creditor operating in the market,
- checking whether a public entity acts in the manner a private creditor would when providing financial support.
Who does the private creditor test apply to?
- local government units and state-owned legal entities providing financing,
- companies with State Treasury or local government shareholding,
- business entities receiving financial support from public institutions,
- advisers and law firms supporting transactions involving public funds,
- financial institutions and creditors involved in projects involving public funds.
How can we help?
- we prepare tests in accordance with European Commission guidelines and national regulations,
- we analyse the viability of loans and guarantees from a market perspective,
- we develop comparative scenarios and benchmarks for financing terms,
- we prepare test reports ready to be presented to an auditor or inspection authorities,
- we provide support at the planning, implementation and review stages of the project.
Why should you entrust us with the private creditor test?
We specialise in conducting private creditor tests, supporting local government units (LGUs) and public institutions in assessing the soundness of transactions and financial decisions. Our reports combine financial, legal and analytical expertise, ensuring full compliance with audit and regulatory requirements.
- Experience in working with local government units and public institutions – we carry out tests tailored to the specific nature of the public sector
- Knowledge of case law and European Commission guidelines – we take into account regulations and recommendations regarding state aid
- A consistent multidisciplinary approach – we combine financial, legal and market analysis
- Reports accepted in audit and inspection practice – documents ready for use in audits and inspections
- Confidentiality and adaptation to the requirements of public sector clients – every analysis is carried out in accordance with ethical principles and regulatory requirements
Thanks to our experience, the private creditor test becomes a tool supporting financial decisions and safeguarding the interests of public sector entities.
Benefits of conducting the test
- protection against the risk of unlawful state aid,
- professional documentation of financial decisions,
- facilitation of audits and communication with inspection authorities,
- enhanced transparency of restructuring and financing processes,
- increased security for management boards and decision-makers.
Our experience
- tests for companies with local government unit and State Treasury shareholdings,
- advice on restructuring transactions,
- assessments for projects involving public funds,
- opinions for the purposes of auditor reviews.
FAQ
What is the private creditor test?
The private creditor test assesses whether a public entity would provide financial support on the same terms as a private creditor operating in the market.
Is the test mandatory?
It is not mandatory, but it is recommended to avoid granting unlawful state aid and to ensure compliance with transfer pricing regulations.
How long does it take to prepare the test?
Usually between 5 and 15 days – depending on the type of activity and the availability of data.