What is a director’s loan?
A director’s loan is money that passes between a limited company and one of its directors that is not salary, a dividend, a repayment of expenses or a payment the director has already put in. It runs in both directions. A director who lends the company money, or pays its costs personally, has a loan to the company, and the company owes it back. A director who takes money out of the company beyond what has been declared as salary or dividend has a loan from the company, and owes it back. Both are recorded in the director’s loan account, which is simply the running balance between the two.
The company and the director are separate legal persons, so a director cannot treat the company’s bank account as an extension of their own; every movement is a transaction between two parties, and the law, the accounts and the lenders all treat it that way.
A director lending to the company
This is the common case in a young business and the ordinary equity layer in a deal: the director puts cash in and the company shows a creditor, the director, on its balance sheet. The loan can carry interest or not, be repayable on demand or on terms, and be documented in a loan agreement or left on the account. It is unsecured unless the company grants the director a charge, which a company can do and must register under Part 25 of the Companies Act 2006 like any other charge. On a company failure the director ranks as an ordinary unsecured creditor for the balance, behind the secured and preferential creditors.
A director borrowing from the company
A loan from the company to a director needs the approval of the members under section 197 of the Companies Act 2006, unless it falls within one of the exceptions the Act sets out, and the loan must be disclosed in the company’s accounts under section 413. Where the balance is still outstanding more than 9 months after the end of the accounting period in which it was made, the company pays a tax charge under section 455 of the Corporation Tax Act 2010, which is repaid to the company once the director repays the loan. A loan above the threshold set in the tax legislation that carries no interest, or interest below the official rate, is also a benefit in kind for the director. None of this is prohibited; all of it is recorded and taxed.
How a lender reads the loan account
In the filed accounts and the management figures. A credit balance, the director owed money by the company, is read as part of the owners’ investment, and many lenders ask for it to be subordinated to their own loan, so that the director is not repaid ahead of them, and for it not to be withdrawn during the term. A debit balance, the director owing money to the company, is read as money that has left the business, and a lender sizing a loan on the company’s cash flow will ask whether and when it is coming back. A debit balance that grows every year is one of the patterns that a trading record cannot hide.
We work with UK limited companies and LLPs only, for business and commercial purposes. Enquiring does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file.
Where the director’s loan appears in business finance
As the equity in a management buyout or an acquisition, where the managers’ own money goes in as a loan or as share capital and the lenders expect to see it. As the deposit on an asset or a property, where the lender asks where the money came from and a director’s loan is an answer with a paper trail. And in the subordination deed a lender asks the director to sign, which keeps the director’s loan behind the lender’s until the lender is repaid. The management buyout answer and the acquisition finance page set out the structure.
Frequently asked questions
Can a director lend money to their own company?
Yes. The company records a creditor and repays the director on whatever terms they agree. Interest, if charged, is income for the director and a cost for the company, and the company may have to deduct tax from it at source.
Can a director borrow from the company?
Yes, with the members’ approval the Companies Act 2006 requires and the disclosure in the accounts. The balance is taxed under section 455 of the Corporation Tax Act 2010 if it is still outstanding 9 months after the year end, and the charge is repaid when the loan is.
What is a subordination or postponement deed?
An agreement under which the director agrees not to be repaid their loan to the company until the lender has been repaid. Lenders ask for it so that the money they counted as the owners’ investment stays in the business for the life of the facility.
Is a director’s loan the same as a personal guarantee?
No. A loan is money the director has put in or taken out. A guarantee is a promise to repay the company’s borrowing if the company cannot. A director can have both at once.
Is CapExpand regulated?
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. If you have a complaint, our complaints page explains how it is handled.
How is CapExpand paid?
We will receive commission from lenders. On some cases we also charge a fee, which we set out in writing and agree with you before you proceed.
More funding questions answered
- What is asset finance?Borrowing to acquire or release value from equipment, vehicles or machinery where the asset is the security: hire purchase, leases and refinance, and what defines each.
- What is invoice finance?Borrowing against unpaid invoices: the advance, the balance on payment, factoring against discounting, recourse against non-recourse, and what defines it.
- What is a commercial loan?Lending to a business for business purposes, as distinct from consumer lending: what the term covers, the main kinds, and what a commercial loan agreement contains.
- What is development finance?A short-term facility that funds a site and the build on it, drawn in stages against certified work and repaid from the sale or refinance of the finished scheme.
- What documents do I need for a business loan?What lenders ask for by product, why some skip the accounts, and what to have ready on day one.
- What counts as bad credit for a business?CCJs, defaults, late payments and thin files, and how long each stays on record.
Putting your own money in beside a lender’s
The amount the company needs, what the directors are putting in and the purpose are enough for us to check the case against lenders’ published criteria before anything is sent anywhere.
Sources
Checked 26 October 2026 against the legislation as published on legislation.gov.uk. This page explains the law in general terms and is not tax or legal advice; the rate of the section 455 charge and the benefit-in-kind threshold are set by HMRC and are not stated here.
- Companies Act 2006, section 197: loans to directors, requirement of members’ approval
- Companies Act 2006, section 413: information about advances and credits to directors
- Corporation Tax Act 2010, section 455: charge to tax in case of loan to participator
- GOV.UK: director’s loans
- Companies House: CapExpand Ltd 14433858
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. We do not provide financial advice.