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Director's Loan Agreement UK: Key Terms Explained

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Part ofCorporate Legal Documents UK

Written by Brad Askew Solicitor (non-practising)
Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice.
Updated June 2026 · England & Wales
When a director or shareholder puts their own money into the company they own or run, the arrangement should be written down properly. A Director's Loan Agreement sets out the terms of that lending, protecting both the individual putting money in and the business receiving it. It sounds straightforward, but the detail matters: is the loan secured against company assets? When is it repayable? What interest rate applies? Does it trigger any of the rules in the Companies Act 2006? This guide walks through what these agreements usually cover, where the risks tend to sit, and what to think about before signing. Whether you're putting in a few thousand pounds to bridge a cash flow gap or a larger sum to fund growth, getting the paperwork right now saves arguments and tax headaches later.

What this document is

A Director's Loan Agreement is a written contract recording the terms on which a director or shareholder lends funds to their company. The individual acts as the lender, and the company itself is the borrower. The document typically records the loan amount, the repayment date or schedule, any interest payable, and what happens if the company fails to repay.

It may also cover what triggers early repayment, what the company can and cannot do while the loan is outstanding, and whether the lender has any security over company assets. These loans are common in smaller owner-managed businesses, where directors frequently use personal funds to keep trading during quieter periods or to finance specific projects.

Without a written agreement, the position can get murky quickly: HMRC has particular rules about director loans, and disputes between shareholders often arise when informal lending is not properly documented. A clear written record keeps everyone honest and makes the tax treatment far easier to manage.

How to use this document

  1. Agree the commercial terms first. Before drafting anything, the director and the company need to agree on the core points: how much is being lent, when it needs to be repaid, whether interest is charged and at what rate, and whether any security is being given. These decisions shape every clause that follows.
  2. Check the company's constitution and get board approval. Look at the articles of association and any shareholders' agreement to confirm the company can borrow from a director on these terms. A board resolution authorising the loan should be passed and minuted, and in some cases shareholder approval may also be needed under the Companies Act 2006.
  3. Decide whether the loan will be secured. An unsecured loan is simpler but riskier for the lender. A secured loan gives the director a claim over specific company assets if things go wrong. If security is being taken, a separate debenture or charge document is needed, and this must be registered at Companies House within the statutory deadline.
  4. Draft the agreement and review it carefully. The written agreement should cover repayment terms, interest, events of default, any restrictions on the company while the loan is outstanding, and what happens if the director leaves the business. Each clause should reflect what has actually been agreed commercially, not just boilerplate wording.
  5. Sign, store, and follow the paperwork. Both parties should sign the agreement and keep copies with the company's statutory records. If security has been granted, file the charge at Companies House on time. Keep clear records of payments in and out, because HMRC will expect to see them if the director's loan account is ever queried.
If you're dealing with this kind of situation, speak to an experienced legal adviser who can walk you through it — from £89.

Common questions

Q Does a director's loan to the company have to be in writing?
Legally, a loan can exist without a written agreement, but putting it in writing is strongly recommended. A written agreement avoids disputes about repayment terms, makes the tax position clearer for HMRC, and protects the director if the company later runs into trouble. For any loan of meaningful size, a signed agreement is standard practice.
Q Can a director charge interest on money they lend to their own company?
Yes. A director can charge a commercial rate of interest, and many do. The interest is taxable income for the director, and the company may be able to deduct it as a business expense. Interest paid to a director may also require the company to deduct income tax at source and report it to HMRC, so the tax treatment should be checked before finalising the rate.
Q What is a debenture and when is it needed?
A debenture is a separate document that creates security over the company's assets in favour of the lender. If the director wants the loan to be secured, a debenture or specific charge is the usual mechanism. The loan agreement itself records the debt, but the debenture is what gives the lender priority over other creditors if the company cannot repay.
Q Does section 190 of the Companies Act 2006 apply to secured director loans?
It can. Section 190 deals with substantial property transactions between a company and its directors and may require shareholder approval. Whether taking a charge over company assets in favour of a director falls within the rule depends on the specifics, including the value of the assets involved. This is one area where getting it wrong can invalidate the arrangement, so it deserves careful thought.
Q What happens for tax purposes if the company lends to the director instead?
That is the reverse situation and has different rules. Loans from a company to a director can trigger a corporation tax charge under section 455 of the Corporation Tax Act 2010 if not repaid within a set period, and may also create a benefit in kind for the director. The rules are quite specific and an accountant should review the position.
Q Can the loan be repaid early?
That depends on what the agreement says. A well-drafted loan agreement will set out whether early repayment is allowed, whether any notice is required, and whether any fee applies. Without clear wording, the parties may have to negotiate repayment terms later, which can cause friction especially if relationships have changed.
Q What happens to the loan if the director resigns or sells their shares?
The loan does not automatically disappear. It remains a debt of the company owed to the individual, regardless of whether they are still a director or shareholder. This is why exit scenarios are worth addressing in the agreement itself, including whether resignation or share transfer triggers early repayment.
If you're dealing with this kind of situation, speak to an experienced legal adviser who can walk you through it — from £89.

Sources

This guide is based on primary UK law and official guidance.

Brad Askew, Solicitor (non-practising)

Written & reviewed by

Brad Askew Solicitor (non-practising)

Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice. LegalDocuments.co.uk is not a law firm and does not provide regulated legal advice.

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Legal disclaimer
This article is for general information only. It is a tool to help you find your way — not legal advice, and not a substitute for speaking to a qualified adviser about your situation.