What Is a Director’s Loan?

A director’s loan is money taken from a company by one of its directors that is not:

  • Salary

  • Dividends

  • Reimbursement of expenses

In simple terms, it’s money a director borrows from (or lends to) their own company.

How Does a Director’s Loan Work?

There are two common situations:

1. Director Borrows Money From the Company

If a director takes company money for personal use, it is recorded as a director’s loan.
The director is expected to repay the money.

Example:

  • A director withdraws $5,000 for personal use

  • This amount is recorded in the director’s loan account

  • It must be paid back or properly declared

2. Director Lends Money to the Company

Sometimes a director puts their own money into the business to help with cash flow.

Example:

  • A director lends $10,000 to the company

  • The company owes this money back to the director

  • The loan can be repaid later, often tax-free

What Is a Director’s Loan Account (DLA)?

A Director’s Loan Account (DLA) is a record that tracks:

  • Money the director owes the company

  • Money the company owes the director

If the account is overdrawn, the director owes the company.

Are There Tax Implications?

Yes — especially when the director borrows from the company.

Depending on the country:

  • Interest may need to be charged

  • Extra taxes may apply if the loan is not repaid within a certain time

  • The loan may be treated as income if rules are broken

⚠️ Tax rules around director’s loans can be strict, so proper accounting is essential.

Why Do Businesses Use Director’s Loans?

Director’s loans are often used to:

  • Help a company during cash-flow problems

  • Avoid taking expensive bank loans

  • Provide flexibility in early-stage businesses

Key Things to Remember

✔️ Director’s loans must be properly recorded
✔️ They are not free money
✔️ Repayment terms should be clear
✔️ Tax advice is strongly recommended

Final Thoughts

A director’s loan can be a useful financial tool when used correctly, but it can also create tax and legal problems if mismanaged. Keeping clear records and understanding local tax laws is essential.