Director Loan Agreement Template: What To Include

Yes, if you're lending money to your own limited company, you should put the loan in writing. A director loan agreement template can be a helpful starting point, but the agreement needs to match how your company will actually use and repay the money.

The nuance is that founder funding can be debt, equity, or a mix of both. If it's debt, you should be clear that the company has to repay it, when it has to repay it, whether interest applies, and what happens if the company can't pay on time.

This doesn't have to be complicated. A clean written loan agreement, supported by the right company approvals, can protect your cash, your company records, and your relationships with co-founders or other shareholders.

Do I Need A Loan Agreement If I'm Lending Money To My Company?

Yes, you should have a written loan agreement if you're lending money to your company. Even if you're the only director and shareholder, a written record helps show the money is a loan rather than a share investment, gift, director's expense reimbursement, or informal cash injection.

For a UK limited company, your company is a separate legal person. That means money you put into the company doesn't automatically remain yours unless the paperwork says so. If you want the company to repay you, the loan terms should be clear.

A written agreement can help you answer practical questions such as:

• How much is being lent? Record the amount, date and payment method.
• Who is the lender? This might be you personally, another shareholder, or a related business.
• When is repayment due? The loan might be repayable on a set date, in instalments, or on demand.
• Will interest be paid? If yes, state the rate, how it's calculated and when it's payable.
• Is the loan secured? If yes, the company may need extra documents and Companies House filings.

Without a written agreement, you may struggle to prove the loan terms later. That can become a real issue if you bring in investors, sell the business, fall out with a co-founder, or the company runs into cash flow problems.

Is A Director Loan To A Company Debt Or Equity?

It depends on what you agree and record, but a director loan to a company is usually debt if the company is expected to repay it. Equity is different: if you put money in exchange for shares, you're investing in ownership rather than creating a repayment obligation.

This distinction matters because debt and equity behave differently.

Debt

If your funding is debt, the company owes you money. You may agree interest, a repayment date, security, and default consequences. The loan will usually appear in the company's accounts as a liability.

Debt can be useful when you're funding a short-term gap, buying equipment, or helping the company get through a quiet period. It gives you a clearer path to being repaid, subject to the company's ability to pay.

Equity

If your funding is equity, you usually receive shares. You don't have a right to be repaid just because you invested. Your return may come through dividends, an increase in share value, or sale proceeds if the business is sold.

Equity can make sense where the company needs long-term capital and doesn't want repayment pressure. But it can also dilute existing shareholders and may need share issue paperwork under the Companies Act 2006, the company's articles of association and any shareholders agreement.

Say Priya owns 70% of a design studio and lends the company GBP 20,000 to cover a fit-out. If the documents say it's a loan repayable over 24 months with 6% annual interest, Priya is a creditor for that amount. If instead the company issues her new shares for GBP 20,000, she's increased her investment, but she shouldn't expect automatic repayment.

What Should A Director Loan Agreement Template Include?

A director loan agreement template should include enough detail to prove the commercial deal and guide both sides if something changes. A template can miss points that matter for your company, so it's worth having it tailored before you sign.

Here is a fill-in outline you can use to brief your lawyer or prepare your instructions. It's not a finished legal document.

1. Parties: Name the company as borrower and the director or shareholder as lender, with addresses and company number.
2. Background: Briefly explain why the loan is being made, such as working capital, equipment, stock or premises costs.
3. Loan Amount: State the exact amount, currency and whether the money is paid in one amount or tranches.
4. Drawdown: Set out when the company can access the money and any conditions before payment.
5. Purpose: Say what the company can use the funds for, especially if you want to stop the money being used for unrelated expenses.
6. Interest: State whether interest is payable, the rate, when it accrues, and whether it compounds.
7. Repayment: Include the repayment date, instalment schedule, or on-demand repayment process.
8. Early Repayment: Say whether the company can repay early without penalty.
9. Security: Record whether this is an unsecured loan or supported by a charge, debenture, guarantee or other security.
10. Default Events: List what counts as default, such as missed payments, insolvency, breach of the agreement or unauthorised use of funds.
11. Consequences Of Default: Explain whether interest increases, repayment becomes immediately due, or enforcement rights apply.
12. Company Approvals: Refer to board approval, conflicts of interest, and any shareholder consent required.
13. Records And Notices: Set out where notices are sent and what records the company must keep.
14. Governing Law: For an England and Wales agreement, state that the agreement is governed by the laws of England and Wales.

The agreement should also line up with your accounts. Your accountant can help you record the loan correctly, while your legal team can make sure the agreement actually gives effect to the commercial deal.

How Should Repayment And Interest Work?

Repayment and interest should work in a way your company can realistically afford. If the terms look tidy on paper but your company can't meet them, you'll create stress and possible disputes later.

Common repayment options include:

• Repayable On Demand: You can ask the company to repay when you choose, usually after giving written notice. This is flexible for you but can make the company's finances look less certain to investors or lenders.
• Fixed Repayment Date: The company repays on a specific date, such as 12 months after the loan is advanced. This is simple but less flexible if cash flow is uneven.
• Instalments: The company repays monthly or quarterly. This can help with planning, especially where the loan funded a revenue-generating asset.
• Repayment Trigger: Repayment happens after an event, such as a funding round, sale of an asset, or achieving a cash reserve target.

Interest is optional. Some director loans are interest-free, especially in early-stage companies. Others include interest to recognise the risk you're taking by lending your own money.

If the company pays interest to you personally, there may be HMRC reporting or withholding tax issues, including CT61 filings in some cases. That's a tax point, so you should check it with your accountant before payments start.

For example, Mike lends GBP 30,000 to his cleaning company to buy vans. The agreement says the company will repay GBP 1,250 per month over 24 months, plus 5% simple annual interest calculated monthly. If the company misses two monthly payments, the unpaid balance becomes immediately repayable after 10 business days' written notice. That gives Mike a clear process without forcing a dispute the first time cash flow is tight.

Should The Loan Be Secured Or Unsecured?

It depends on the level of risk and the assets available, but many director loans to small companies are unsecured unless the amount is significant. A secured loan gives you extra protection, but it also adds paperwork and can affect future funding.

An unsecured loan means you rely on the company's promise to repay. If the company later becomes insolvent, you'll usually rank with other unsecured creditors unless a legal priority applies. That may mean you recover little or nothing.

A secured loan gives you rights over particular assets or over the company's assets more generally. Common options include:

• Fixed Charge: Security over a specific asset, such as equipment or machinery.
• Floating Charge: Security over changing assets, such as stock or receivables.
• Debenture: A security document that may include both fixed and floating charges.
• Personal Guarantee: Less common where you're already the lender, but sometimes relevant where another person or entity is involved.

If your company grants a charge, it usually needs to be registered at Companies House within 21 days after the charge is created. If registration is missed, the security can be void against an administrator, liquidator or creditor, even though the debt may still exist.

Security can also complicate future bank lending or investment. A new lender may ask you to release or postpone your security before they provide funding. If you're planning to raise capital soon, think about how your director loan will look during due diligence.

What Company Approvals Do I Need?

You usually need board approval, and you may also need shareholder approval depending on your company's articles, shareholders agreement and the loan terms. Even where you're the only director, you should document the decision properly.

Under the Companies Act 2006, directors have duties to act in the company's interests, use reasonable care, skill and diligence, and avoid or manage conflicts of interest. A loan from you to the company can involve a conflict because you're on both sides of the deal: you're a director of the borrower and the lender seeking repayment.

In practice, you should check:

• Articles Of Association: Do they allow the board to approve the borrowing? Do they set rules for conflicts?
• Shareholders Agreement: Does borrowing over a certain amount need shareholder consent?
• Existing Finance Documents: Do bank or investor documents restrict new debt or security?
• Board Minutes: Has the board approved the loan terms and recorded any conflicts?
• Company Registers And Accounts: Will the loan be recorded consistently in the company's financial records?

Company borrowing is usually easier than a company lending money to a director, which can trigger specific shareholder approval rules under the Companies Act 2006. Still, you shouldn't skip the internal process. If another shareholder later says the loan was unfair, unauthorised or not properly approved, your records will matter.

If the company is already struggling to pay debts as they fall due, get advice before taking repayments. Repaying a director ahead of other creditors can create insolvency risks, including challenges to certain transactions if the company later enters liquidation or administration.

How Do I Put A Shareholder Loan Agreement In Place?

You can put a shareholder loan agreement in place by agreeing the commercial terms, checking your company documents, approving the shareholder loan agreement, then signing and recording it properly. The steps are usually straightforward if you do them in the right order.

1. Decide Whether It's Debt Or Equity: Be clear that the money is a loan if you expect repayment.
2. Agree The Main Terms: Set the amount, purpose, interest, repayment, default terms and whether there's security.
3. Check The Company's Rules: Review the articles of association, shareholders agreement and any existing loan or investment documents.
4. Prepare The Agreement: Use a tailored company loan agreement rather than relying on a generic template that doesn't fit your structure.
5. Approve The Loan: Hold a board meeting or pass written board resolutions, and manage any director conflicts.
6. Sign And Pay: Sign the agreement before or at the time the money is advanced, then transfer the funds in a traceable way.
7. Register Any Security: If there's a charge, handle the Companies House registration within the required 21-day period.
8. Keep Records: Store the agreement, board minutes, proof of payment, repayment records and interest calculations.

If more than one shareholder is lending, think about whether the loans should rank equally or whether one person gets repaid first. That can be sensitive. For example, if two founders each lend GBP 10,000 but one loan is secured and the other isn't, that difference should be deliberate and agreed, not discovered during a later dispute.

As your company grows, investors will usually review director and shareholder loans during due diligence. Clear paperwork makes those conversations much easier.

Key Takeaways

• A director loan to company arrangement should be in writing if you expect the company to repay you.
• Debt is different from equity: a loan creates repayment rights, while shares create ownership rights.
• Your agreement should cover the loan amount, interest, repayment, security, default events and approvals.
• Board approval and conflict management matter, especially under the Companies Act 2006 and your company documents.
• If the loan is secured, Companies House registration is usually needed within 21 days after the charge is created.
• Templates can help you organise your thinking, but the final agreement should be tailored to your company, accounts and funding plans.

If you'd like help with your director or shareholder loan agreement, board approvals, security documents or company funding paperwork, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.