Business loan vs director's loan: what's the difference?

A business loan is external finance the company borrows from a lender; a director's loan is money that moves between a director and their own company. They are easy to confuse but they are not alternatives to the same problem. A business loan brings new money into the company from outside. A director's loan simply records money the director has put in or taken out — it does not add funding the company did not already have access to. With a business loan, a lender advances funds to the company, which repays over an agreed term. With a director's loan, the director lends their own money to the company (or draws money out), and the balance is tracked in the director's loan account — the "DLA" — on the company's books. One is finance; the other is bookkeeping for money crossing between owner and business.

Business loan vs director's loan: what's the

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ExternalBusiness loan brings new money in

InternalDirector's loan moves existing money

RecordedDirector's loans sit in the DLA

How each one works

With a business loan, a lender advances funds to the company, which repays over an agreed term. With a director's loan, the director lends their own money to the company (or draws money out), and the balance is tracked in the director's loan account — the "DLA" — on the company's books. One is finance; the other is bookkeeping for money crossing between owner and business.

When each makes sense

A director's loan can be a quick way to cover a short gap if the director happens to have personal funds spare and is willing to put them at risk in the business. A business loan is the route when the company needs funding it does not otherwise have, or when a director would rather keep their personal money separate from company risk. Many owners prefer the second precisely because Credicorp lends to the company without a personal guarantee, keeping personal and company finances apart.

The tax angle to watch

Director's loans carry their own tax rules — an overdrawn account left outstanding past a deadline can trigger a charge, and interest treatment differs from commercial borrowing. Business loan interest, by contrast, is generally an allowable company expense. If a director's loan is drifting, refinancing it with company finance is a common tidy-up. Speak to your accountant on the specifics before acting.

Frequently asked questions

Can a business loan repay a director's loan?

Yes, that is a common use — a company borrows commercially to repay a director who had funded it, returning the director's personal money and moving the borrowing onto the company's books.

Is a director's loan cheaper than a business loan?

Not necessarily. A director's loan risks the director's own money and can carry tax consequences if left overdrawn. A business loan has a clear cost but keeps personal funds out of the business.

Does a director's loan show as company debt?

If the director has lent money in, the company owes them and it shows as a creditor. If the director has taken money out, they owe the company. Either way it sits in the director's loan account.