A director's guide to shareholder loans and funding

Two ways shareholders put money in

An owner can inject cash as a loan — the company owes it back, like a director's loan — or as equity, buying more shares. The choice shapes everything: a loan is repayable and ranks ahead of shares, while equity is permanent and only rewarded through dividends and growth. Both are legitimate; they suit different intentions.

Why the distinction matters

The label isn't cosmetic. A loan can be repaid tax-free (returning the lender's own money) and, in an insolvency, ranks ahead of shareholders as a creditor. Equity can't simply be withdrawn and sits last in the queue. Getting the classification and paperwork right from the start avoids disputes and tax problems later — especially where several owners contribute unequally.

Document every shareholder loan

A shareholder loan should be properly documented — amount, terms, any interest, repayment expectations — even between friends or family. Undocumented injections cause confusion at year end and can attract tax questions. Where a lender requires it, a shareholder loan can be subordinated behind the bank to strengthen the company's funding position.

Interest and tax

Charging interest on a shareholder loan makes the interest a deductible cost for the company and taxable income for the lender, with tax often deductible at source. It's a modest way to reward the funding, but adds admin. Many keep shareholder loans interest-free for simplicity — the right choice depends on the numbers and the owners' preferences.

When external funding fits better

Shareholder funding is patient and flexible, but it ties up the owners' personal cash and doesn't always scale. For larger or longer needs, external borrowing keeps owners' money free and the debt on the company. Credicorp lends to the company, not to individuals, with no personal guarantee. Weigh the routes in equity vs debt finance.