My client "ABC Ltd", is a one director company. The director applied for a loan via Funding Circle for a "private project" (nothing to do with the Ltd Co.). The loan was processed under the name "ABC Ltd" and was paid into the Ltd Co. bank account. The loan capital received is being taken out of the bank account, as and when it is needed for the private project. The loan repayments are also made from the Ltd Co. bank account.
My question is - am I allowed to class this as "personal", and allocate the loan paid, repayments and withdrawals to the Director Account ? Or, should this be classed as a business loan, with the loan interest being claimed by the Ltd Co, and the withdrawals allocated to the Director Account ? (Or, allocated differently, if I am completely wrong !!)
Ok, its now too late to say that this should not have gone anywhere near the limited company account although I am somewhat confused that funding circle would deposit in that account if the director was not leading them to believe that the funding was for the limited company.
Firstly you need to see the wording of the agreement to determine who the loan was really for, not just take the directors word for it.
The difference is treating this as a loan by funding circle to the busiess OR treating this as a loan from the director to the company.
At the moment it seems as though the loan is a hybrid between the two and that needs to be unravelled to move forwards.
If, as indicated this is nothing to do with the limited company then the loan would be put to the DLA and loan repayments would come from the DLA. There would be no expensing of interest (such would not touch the P&L at all) or loan liability (although there is the DLA one).
I do worry that everything is in the name of the business which to me shouts that the loan was in fact taken out by the business and the director is using the funds personally.
As I say, you need to see the agreement and read it as written, not the interpretation that the director will be trying to put on it.
Is there not a clause in the funding circle agreements that if funds are not used for the intended purpose then the agreement may be terminated and funds reclaimed? The veil of incorporation was lifted by the director in treating this as a personal loan (even if for another busiess project) making them personally liable for repayment of the loan regardless of the account that it was paid into.
Everything very much hinges on the wording of the loan agreement.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I was concerned about this one, hence the request for advice. I will certainly get hold of the relevant papers and discuss with the director in more detail, to get to the bottom of this.
