Home – New Forums Starting your journey Can you lend money to your own company?

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  • #986726
    EBC
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    Hi.

    I’m the sole owner and director of a new Pty Ltd and was wondering if it is possible (and legal) to lend money (from my own personal savings) to my company and receive interest on the loan? I’d rather go down this route than have to pay high interest rates to a bank on a small loan.

    Thanks!

    Neil

    #1159337
    Chris H
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    EBC, post: 183811 wrote:
    Hi.

    I’m the sole owner and director of a new Pty Ltd and was wondering if it is possible (and legal) to lend money (from my own personal savings) to my company and receive interest on the loan? I’d rather go down this route than have to pay high interest rates to a bank on a small loan.

    Thanks!

    Neil

    Hi Neil,

    Short answer is that yes you can, I did the same thing when starting my own business. Just keep in mind that any interest you receive from the company is taxable income.

    It’s also really important to make sure that you keep the separation between company and personal finances really well defined or you could lose the asset protection that a PTY LTD company provides if anything was ever to happen.

    Cheers,

    Chris

    #1159338
    Anonymous
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    Hi Neil,

    Welcome to the forum :)

    Chris has kicked things off with some handy info there, but make sure you also check the implications for your personal situation with your accountant before you start.

    Thanks for joining Flying Solo,
    Jayne

    #1159339
    Crusty Mark
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    Hi Neil,

    Yes you can and it’s relatively easy. But the main thing to ensure is done correctly is how it is accounted for in your books. Essentially you become a creditor for the company and exist on the books as a debt. Whoever is doing your book keeping will be able to set this up in about 2 minutes.

    Then you just transfer the money into the company account, then went reconciling accounts it is assigned to yourself as the creditor. In the future you can draw these funds back out without company tax implications.

    But of course, your accountant will be the master of how that works.

    Good luck with the new venture !

    #1159340
    bjmyers
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    Hi Neil,

    Documentation is extremely important wherever a loan is made by or to a private company by a related party. This includes shareholders, directors or their associates.

    I’d strongly recommend talking to your accountant or lawyer about a loan agreement to keep everything above board, particularly if you want to claim a deduction in the company for the interest.

    All the best for your new business

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