Director Loan Accounts and Business Borrowing: What Every Director Must Know
James Porter
Finance Specialist · Jul 14, 2026 · 7 min read
Director loan accounts (DLAs) are among the most commonly misunderstood financial instruments in UK small business. They record money borrowed from or lent to a company by its directors, and their interaction with external business borrowing creates tax, accounting, and lender implications that catch many business owners off guard. Understanding how DLAs work, and how lenders view them, is essential for any UK director who mixes personal and business finances.
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How director loan accounts work
When you put money into your company (other than as share capital or salary), it creates a credit balance in your DLA: the company owes you that money. When you take money out beyond your formal salary or dividends, it creates a debit balance: you owe the company that money. Both positions have significant tax implications and both are highly visible to lenders who review your management accounts.
A debit DLA balance (money owed by the director to the company) must be repaid or treated as a benefit in kind within nine months of the company's year end, or corporation tax at 33.75% applies on the outstanding balance. This tax is refundable once the loan is repaid, but it represents a significant cash outflow that many directors do not anticipate when they are drawing casually on the company account.
What lenders think about director loan accounts
Lenders view DLA balances with some scrutiny. A large credit DLA (money owed by the company to the director) is technically a liability on the company's balance sheet, reducing net assets. If the director chooses to demand repayment at an inconvenient time, it could destabilise the business. Lenders often ask directors to subordinate their DLA (agree not to demand repayment without lender consent) as a condition of a business loan.
A debit DLA (money owed by the director to the company) raises questions about how the business is being managed. Lenders may view it as evidence of weak financial controls or informal financial management. If it is material relative to the company's net assets, it can affect credit decisions. Directors with recurring debit DLA balances would benefit from formalising their remuneration structure to eliminate or minimise the DLA.
"A clean separation between director remuneration and company funds makes the strongest possible impression on UK business lenders."
- James Porter, Finance Specialist
Structuring your remuneration to avoid DLA issues
The cleanest position for a director seeking business finance is a salary that covers their drawings (so they are not borrowing from the company), with dividends taken formally at board-approved intervals. This eliminates the need for a DLA, keeps personal and business finances clearly separated, and presents the cleanest possible picture to lenders.
Where historical DLA balances exist, discuss with your accountant the most tax-efficient way to clear them before applying for significant business finance. Options include declaring a sufficient dividend to clear the balance, making a formal loan agreement between the director and the company, or formalising past drawings as additional remuneration. Each has different tax consequences.
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Frequently Asked Questions
Do I need to disclose my director loan account when applying for business finance?
Yes, indirectly. Your balance sheet will show it. Be prepared to explain any material DLA balance and the arrangements for repayment if a lender asks.
Can a large director loan account block a business loan application?
It can complicate it. A large credit DLA is a liability that reduces net assets. Lenders may require it to be subordinated. A large debit DLA raises questions about financial management.
What is a subordination letter and when do lenders request one?
A subordination letter is a signed commitment by the director not to demand repayment of their DLA without the lender's consent. It is common in UK business lending where directors have material credit DLA balances.
The bottom line
Director loan accounts are not inherently problematic, but they need to be understood and managed. The directors who access the best business finance terms are those whose company accounts are clear, whose remuneration is formally structured, and who have removed ambiguity about the financial relationship between themselves and their company. If you have DLA concerns before a finance application, speak to your accountant and discuss the position with a broker before approaching lenders.
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