Loans Resources

DEFINITION OF LOANS:

A loan is a type of debt. The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt.

SOURCES OF LOANS

For new business start up, in addition to the traditional lenders such as banks and other large financial institutions, there are different sources of loans that may be appropriate.

The Prince's Trust considers loans and grants for young people aged 18 to 30 who are unemployed, underemployed or of limited means. You can get support, advice and practical help on starting and growing a business.

Small Firms Loan Guarantee Scheme (SFLGS).

The SFLGS guarantees loans from banks and other financial institutions for small firms that have tried and failed to get a conventional loan because of lack of security.

LOANS TO DIRECTORS
If a director wishes to borrow money from the company he must first comply with the followng:

- The loan involves a contract between the director and the company and therefore the director must disclose the interest in accordance with section 317 of the Companies Act 1985. If it must be ratified at a meeting he cannot vote in favour of the loan at the board meeting and is excluded from the quorum.

- The loan must comply with the Companies Act 1985. The general rule is that a company may not make a loan to a director of the company or of its holding company or enter into any guarantee or provide any security in connection with a loan made by any persons to a director.

Notwithstanding the provisions above the following are permitted: -
A company may make small loans up to and including £5000 to directors
A company may provide the director with funds to meet expenditure incurred (or to be incurred) either to enable the director to perform his duties or for the purposes of running the company. The conditions that apply are:

- The company has given its prior approval to this in general meeting

- If prior approval is not given there is a condition attached that if permission is later withheld at the AGM the amount will be repaid in full within six months of the AGM at which approval was withdrawn

- The maximum amount advanced at any one time does not exceed £1000

- The director accounts for the expenditure at regular intervals

- The aggregate of expenditure never reaches £20,000 for any one director.

The Inland Revenue web site is a useful source of information relating to Directors loans.

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