Loans or Investment from those involved in the Business

Loans or Investment by Participants


A common source of finance for owner-managed companies, especially in the early days, is the private resources of those involved in the business, normally directors and major shareholders.

If this route is to be taken, there are two main issues to be considered. Firstly, the terms of the loan should be agreed formally in writing; in particular you should consider how and when the loan should be repaid; interest (how much and when it is paid); the issue of security; subordination; and what is to happen if repayment looks unlikely. The loan agreement may also address the possibility of converting the loan in to shares in the future.

Secondly, you should ensure that lenders and investors obtain maximum benefit in terms of tax reliefs.

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