Directors Loans: Money Between You and Your Company, and Division 7A
How directors loans work in Australia: the director loan account, Division 7A when a company lends to you, and how lenders read the balance.
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Directors Loans · Division 7A · Lender View
When you move money between your own bank account and your company's, who owes whom, and does a lender see it the same way? This insight follows the director loan account both ways, through Division 7A and onto a lender's desk.
Quick Answer
A directors loan is money lent between a company and one of its directors, in either direction, and recorded in the director loan account. When the company lends to you, Division 7A sets the terms the loan must meet. When you lend to the company, the tax rules are lighter, but a lender still reads the balance before it approves business loans for the company.
Also called: director loan account, shareholder loan, related party loan. A shareholder loan also covers shareholders who are not directors, and "related party loan" is the lender's label for any of them.
What is a director's loan?
A director's loan is any money lent between a company and one of its directors, in either direction, and tracked in the director loan account. If you put your own savings into the company to cover a quiet quarter, the company owes you. If the company pays your personal credit card, or you take money out that is not recorded as a wage, a director's fee or a dividend, you owe the company.
It only arises because a Pty Ltd company is a separate legal person. A sole trader cannot lend to themselves, but money that crosses between you and your company is a loan unless the books record it as something else. That is why the same transfer can look harmless in your banking app and very different in the company's accounts.
A director's loan is not a director's guarantee. A guarantee is your promise to a lender that you will pay the company's debt if the company cannot; a loan is money that has already moved. The guarantee side has its own explainer in our director's guarantee guide.
How does a director loan show up in the company's financial statements?
A director loan shows up on the company's balance sheet: money the director owes the company sits as an asset, and money the company owes the director sits as a liability. Accountants usually call the first a debit balance, often labelled "loan to director", and the second a credit balance, often labelled "loan from director" or "related party loan".
Most small companies show the balance in a note to the financial statements rather than on the face of the balance sheet, and that note is worth reading before a lender does. A debit balance that grows each year suggests money is leaving the business faster than profit allows. A large credit balance suggests the director has propped the company up, which helps, unless the director can pull that money out at any time.
Where a family trust owns the shares or sits elsewhere in the group, the same money can travel through trust distributions and intercompany loans instead. How lenders untangle that across several entities is covered in our guide to how lenders assess group structures.
What does Division 7A require when a company lends to its director?
Division 7A requires a loan from a private company to a shareholder, or to an associate of a shareholder, to be repaid or put on complying terms in time, or the ATO can treat the amount as an unfranked dividend. For most small companies the shareholder and the director are the same person, so this is where the director loan account meets tax law. The rules sit on the ATO's page on Division 7A loans, updated 2 July 2026. At the time of writing, a complying loan needs:
- A written agreement in time. A complying Division 7A agreement must be in place before the company's lodgment day, which is the earlier of the due date and the actual lodgment date of the company's tax return for the year the loan was made.
- A maximum term. Up to 7 years for an unsecured loan, or up to 25 years where the loan is secured by a registered mortgage over real property worth at least 110 per cent of the loan.
- Interest at least the benchmark rate. The 2026-27 benchmark rate, as published by the ATO, is 8.77 per cent. It is a tax setting, not a loan rate, and it changes each income year.
- A minimum yearly repayment. Each year after the year the loan was made, a minimum amount of principal and interest has to be repaid.
If a minimum yearly repayment is missed, the shortfall can itself be treated as an unfranked dividend in the shareholder's hands. The ATO also says that where business money is used for private purposes, the shareholder may be taken to have received a deemed dividend unless it is repaid or put on complying terms before the return is due or lodged. Whether a payment is caught, and what to do about it, is your accountant's call, not a lender's and not ours.
Can a director lend money to their own company for working capital?
A director can lend money to their own company for working capital, and Division 7A does not apply in this direction, because the rules catch money flowing out of a private company to its shareholders, not money flowing in. It is one of the most common ways a small company covers a slow month, a big supplier bill or the wait for a customer to pay.
The tax rules are lighter, but the paperwork still matters. Write down the amount, whether interest is charged and at what rate, when and how the company will repay it, whether you can call it in on demand, and whether the company has given you any security for it. Interest the company pays you is usually income in your hands, which is a question for your accountant.
From the underwriter's seat, an undocumented loan from a director reads as a liability that could be called at any moment, and a lender will want to know whether the money is staying in. If you would rather keep your personal savings out of the business altogether, working capital loans fund the same gap in the company's own name.
Where does a director's loan rank if the company fails?
A director who lends to the company ranks as an unsecured creditor for that loan, unless it was secured and registered, which puts it near the back of the queue if the company is wound up. ASIC's guide for creditors sets out the order in a liquidation: the liquidator's costs come first, then employee wages and superannuation, then leave and retrenchment entitlements, and unsecured creditors last. Each category must be paid in full before the next receives anything, and a shortfall is shared pro rata.
Two things often surprise directors. If you owe the company money, a debit balance on the director loan account, the liquidator can usually call it in like any other debt. And repayments the company made to you in the period before it failed can be examined by the liquidator. Neither changes any director's guarantee you gave a lender, which still stands on its own terms.
How a loan should be secured, registered or documented to protect you, and what a liquidator can recover, are questions for your solicitor. If tax debts are part of the picture, our note on payment plans and director penalty notices covers the separate personal exposure.
How do lenders read a director loan account?
Lenders read a director loan account by its direction and its paperwork: a debit balance can be treated as money taken out of the business, and a credit balance owed to the director can be treated as a debt that competes with the lender. In our own files, the related party note is one of the first places an assessor looks, because it shows how the owner and the company really move money.
| Balance | What it means | What a lender may do (indicative, varies by lender) |
|---|---|---|
| Director owes the company, complying Division 7A agreement | A written loan with interest at least the benchmark rate and minimum yearly repayments | Usually accepts it, may check repayments are being made, and may count the repayments as a personal commitment of the director |
| Director owes the company, no agreement | Money drawn without complying terms, with a deemed dividend risk | May treat it as money taken out of the business, ask for the accountant's position, and may reduce the company's net assets by the balance |
| Company owes the director, unsecured | Money you put in, repayable to you | Often reads it as support if it stays, but may ask whether you plan to draw it down and may treat it as a debt |
| Company owes the director, subordinated or postponed | You have agreed in writing not to be repaid ahead of the lender | Often treats it more like equity, typically the cleaner position for a new facility |
| Company pays the director interest on the loan | An expense in the company's profit and loss | May add the interest back to profit when assessing whether the company can service new debt |
Sources: ATO, Division 7A loans, last updated 2 July 2026. Read 13 October 2026. Lender treatment is indicative and varies by lender.
Where a director has lent the company a large amount, a lender may ask for a postponement deed, varies by lender, so the director is not repaid ahead of the new facility. That is a deed between you, the company and the lender. Priority between two lenders is a different arrangement, explained in our note on subordinating working capital without repricing senior debt.
Which director loan account mistakes cause trouble at finance time?
The director loan account mistakes that cause trouble at finance time are the ones that leave a balance unexplained, undocumented or moving the wrong way. Each of these is fixable, but they are easier to fix before an application than during one.
- No written agreement. Money drawn from the company with nothing on paper, and the lodgment day already passed.
- A missed minimum repayment. A complying agreement exists, but the yearly repayment was not made, so part of the balance may already be a deemed dividend.
- Personal bills from the company account. School fees, a family car or a holiday paid by the company and posted to the loan account at year end.
- Repaying a loan and drawing it straight back. A repayment made just before year end and redrawn soon after can be disregarded by the ATO, and a lender reading the bank statements will see the round trip.
- Unreconciled balances across a group. The company, the trust and the director each record a different figure for the same money, which is the quickest way to stall a file while the lender works out which figure is right.
How do you clean up a director loan account before applying for finance?
You clean up a director loan account before applying for finance by getting the balance reconciled, documented and on the right side of Division 7A, with your accountant, before the lender sees the financials. Timing matters because the fixes that work before the company's lodgment day are often not available after it.
- Reconcile the balance. Match the figure in the books to the bank statements and to every other entity in the group.
- Deal with any debit balance. On your accountant's advice, repay it, put it on a complying Division 7A agreement, or record it as a wage or a dividend.
- Document money you lent the company. Amount, interest, repayment terms and whether it can be called in.
- Decide whether your loan stays in. If it does, be ready to sign a postponement deed if the lender asks.
- Check your own borrowing at the same time. If you are also applying for a home loan, drawings through the loan account are usually not counted as income, which changes the paths set out in our note on company director mortgage options.
A clean account does not guarantee an approval, but it removes a question that otherwise sits over every other part of the file. When it is in order, we can match the company to business loans that fit, and more guides for company owners sit on the Business Owners hub. You can also check eligibility first.
A directors loan is money between you and your company, and the direction of the balance decides which rules apply. Money the company lends you falls under Division 7A and needs a complying agreement before the company's lodgment day, a maximum term, interest at least the benchmark rate and minimum yearly repayments. Money you lend the company sits outside Division 7A but still needs documenting, and in a liquidation it ranks with unsecured creditors unless it was secured and registered. Lenders read both directions, and a reconciled, documented account removes one of the first questions they ask.
Key takeaway: Have your accountant reconcile and document the director loan account before the lender sees the financials, not after.Frequently Asked Questions
A directors loan is money lent between a company and one of its directors, in either direction, and recorded in the director loan account. When the company lends to the director, Division 7A rules apply; when the director lends to the company, they do not, but the loan still needs documenting. It is a different thing from a director's guarantee, which is a promise to a lender rather than money that has moved.
A director can loan money to their own company, and it is one of the most common ways small companies cover a cash gap. Division 7A does not apply in that direction, but the loan should be written down with its amount, any interest and its repayment terms. If you would rather keep your savings out of the business, a working capital loan funds the same gap in the company's name.
The rules for a directors loan account in Australia mostly apply when a private company lends to a shareholder or their associate, usually the director. Under Division 7A that loan needs a written complying agreement before the company's lodgment day, interest at least the ATO benchmark rate, a maximum term of 7 or 25 years and minimum yearly repayments, or it can be treated as an unfranked dividend. The balance also has to reconcile in the company's financial statements, and your accountant should confirm the position each year.
Lenders treat a director loan account as a signal of how money moves between the owner and the business, and the direction of the balance matters. Money you owe the company can be read as money taken out, while money the company owes you may need a postponement deed so you are not repaid ahead of the lender. Treatment varies by lender, and our group structures guide covers how this plays out across several entities.
A director's loan in a liquidation follows the creditor order: liquidation costs first, then employee wages and super, then leave and retrenchment, then unsecured creditors. A director who lent to the company ranks with unsecured creditors unless the loan was secured and registered, so it may be repaid in part or not at all, and any director's guarantee you gave a lender still stands. If you owe the company money, the liquidator can usually call it in, so speak to a solicitor early.
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