When a limited company needs funds quickly, directors often consider lending their own money to the business via a director's loan account (DLA). It is a legitimate option, but it comes with tax and structural implications that external finance avoids.
The case for director loans
A director lending to their own company is simple and fast — no application, no third-party approval. If the director has surplus personal cash and the loan is repaid within the tax year, there may be no immediate tax charge. It can also signal commitment to other stakeholders.
The risks and complications
If the company lends money to a director (a debit DLA), a Corporation Tax charge of 33.75% applies on any balance outstanding nine months after the accounting period ends — and the charge is not repaid until the loan is fully cleared. Even director-to-company loans can create issues: if interest is charged, it is taxable income for the director; if not charged, HMRC may query the arrangement. In both cases, the director's personal capital is at risk if the company cannot repay.
Why external finance keeps things cleaner
A Credicorp Business Loan or Flex facility provides working capital to the company without entangling the directors' personal finances. Repayment terms are fixed and transparent. The directors' personal balance sheets remain separate, and there is no director personal guarantee on the facility. For most companies, keeping the corporate and personal financial boundary clear is both commercially and tax-efficiently sensible.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: Credicorp vs a bank business loan, Credicorp vs a business credit card.