Company Directors making short term loan or loans to the company
25th January 2010
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Despite  being heavily bailed out by the tax payers, banks are still  dragging their heels when it comes to lending much needed money to companies.


Growing number of small companies are reportedly being declined loan. Even where there are short term requests. This can cause significant problems and this has  prompted man to look at alternative funding.


One solution is that one or more of the directors step in and make a personal fixed term loan to the company and providing its  Memorandum & Articles of Association allow it to borrow (  if  these are standard , then they will) this  shouldn’t  be a problem BUT  if you are thinking of going down this road it’s important to have some formalities  in place.


Keeping things basic:


For  straightforward short loans, you don’t need to go into great detail. You can set out the basics  in a loan agreement and this should include 1) the amount of loan 2) names of parties 3) repayment schedule and 4) rate of interest payments.


In event of disagreement over the loan, this will provide clear evidence of the contract. Remember  directors owe duty of care to company and not to the individual director who has agreed to lend  it the money. So make sure decision to borrow is always passed at board level and is recorded.


Getting more serious:


It’s possible that you might want to greater  security before advancing any money especially if the sums involved are large.  If the company owns a property  consider securing a mortgage over it and its protects your money by putting you in stronger position as a ‘’secured  creditor’’  The land registry  will require a formal documentation to register a charge and its best to have this drawn up by a solicitor. Remember if there is a pre-existing mortgage with another lender, it’s likely that you will need to obtain their prior written consent before you can go down this route.


by Jim Poptani independent Financial Advisor

- for more on Jim CLICK HERE

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Kesh M

Member since: 30th July 2011

Locally known as the best connected person in NW London. Kesh is an Advocate of the best local businesses and recommends who are highly regarded by their clients. He also is having the time of his life...

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