Director Loan – Avoid Risks & Gain Control (2026)

As a company director, you might wonder if you can take a loan from your own company. The complexities of running a business are often compounded by financial needs, and the idea of borrowing from your company might seem like a straightforward solution. However, the reality is filled with legal considerations, tax implications, and potential financial pitfalls. Let’s delve into the possibilities and parameters of directors taking loans from their companies in the Australian context.

Understanding Director Loans

Director loans involve a company providing a loan to one of its directors. While this can be a viable way to address personal cash flow needs, it is crucial to understand the legal framework governing such transactions in Australia. The Corporations Act 2001 and the Australian Taxation Office (ATO) regulations play a significant role in shaping the rules and ensuring compliance.

Under the Corporations Act, a company can provide financial assistance, including loans, to its directors only if certain conditions are met. These include shareholder approval and ensuring the loan does not undermine the company’s financial stability. Additionally, the ATO has specific guidelines on how these loans are treated for tax purposes, often categorising them as 'deemed dividends' unless properly structured.

Key Information: Interest Rates, Requirements, and Options

When considering a director loan, it’s essential to understand the current market rates and conditions. In 2026, director loans typically attract interest rates ranging from 6.49% to 12%, depending on the company’s financial health and the director's creditworthiness.

Eligibility criteria for such loans are stringent. Directors must ensure that:

• The loan is properly documented with a written agreement.
• Shareholders have approved the loan, if required by the company’s constitution.
• The company’s solvency is not compromised.
• The interest rate is at least equal to the benchmark interest rate set by the ATO to avoid tax implications.

Steps to Take a Director Loan

If you decide to proceed with a director loan, follow these steps to ensure compliance and minimise risks:

1. Consult with Legal and Financial Advisors: Before taking any action, seek advice to understand the implications fully.
2. Draft a Loan Agreement: Create a comprehensive loan agreement detailing the terms, interest rate, repayment schedule, and purpose of the loan.
3. Seek Shareholder Approval: If required, organise a meeting to obtain approval from the shareholders, documenting the decision in the meeting minutes.
4. Ensure Compliance with ATO Regulations: Check that the interest rate meets the ATO’s benchmark and consider potential tax liabilities.
5. Maintain Proper Records: Keep detailed records of all transactions, repayments, and communications related to the loan.
6. Regularly Review Financial Impacts: Periodically assess the impact of the loan on the company’s financial health and make adjustments if necessary.

Tips and Considerations

Here are some expert tips to keep in mind when dealing with director loans:

• Consider Alternative Financing Options: Explore other financing options available through Esteb and Co’s panel of 83+ lenders to potentially find more favourable terms.
• Be Transparent: Maintain transparency with shareholders and other stakeholders to uphold trust and avoid conflicts.
• Understand Tax Implications: Consult with a tax advisor to understand how the loan will affect your personal and company tax obligations.
• Evaluate Repayment Ability: Ensure you have a clear plan for repaying the loan without jeopardising the company’s operations.

Frequently Asked Questions

1. Can a director loan be written off?

   No, director loans cannot simply be written off. They must be repaid, and writing them off could have tax implications and affect the company’s financial statements.

2. What happens if a director cannot repay the loan?

   If a director cannot repay the loan, it may be classified as a deemed dividend, leading to tax liabilities. It can also impact the company’s financial health and director’s standing.

3. How does the ATO treat director loans?

   The ATO treats director loans as deemed dividends if they are not properly structured with an appropriate interest rate and repayment terms.

4. Do all director loans require shareholder approval?

   No, shareholder approval is not always required, but it depends on the company’s constitution and the terms of the loan.

5. Are there any alternatives to director loans?

   Yes, directors can explore personal loans, equity release, or other financing products available through Esteb and Co’s network of 83+ lenders.