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• 11 Aug

  How To Repay Directors Loans To Your Company

  

  Repaying director's loans that you have made to your company can be achieved with the use of receivables financing. We recently helped a client accomplish this by arranging a Confidential Invoice Discounting (CID) facility for them.

  Repay Directors Loans

  A common way to finance a business is for the directors to inject their own money. Sometimes this can be in the form of share capital. Once you inject the capital, it becomes the property of the company. The money can only be withdrawn by way of a dividend or other taxable method, e.g., a salary payment. However, there is a more common route is to inject funds on a more temporary basis. This will often be in the form of a "director's loan".

  Director's Loans

  Director's loans are monies lent to a company by its directors. They are repayable, however, these arrangements are often informal, with no set repayment dates or schedule. The money can normally be repaid to the directors, without being considered a taxable dividend.

  Getting Your Money Out

  We were recently able to assist a timber company with exactly this issue. The directors had loaned the company substantial amounts of money, by way of loans. The directors wanted their outstanding loan balances repaid. However, they needed to preserve the working capital position of the business, so that its cash flow was not adversely affected by the change.

  Confidential Invoice Discounting To Repay Loans

  Confidential invoice discounting was arranged to release a substantial amount of capital to our client company. This will take the place of the loans for working capital purposes. The payout from the CID facility will enable the company to repay the money lent by its directors, without affecting its working capital position or impacting its cash flow.

  No PGs

  The added benefit was that we were able to find them a facility without any personal guarantees required (often called "PGs"). This reduces the personal contingent liabilities of the company's directors.

  This case study demonstrates you can use receivables finance as part of planning how to repay your director's loans and release a substantial amount of money to your company directors.

  By Glenn Blackman