Company Loans and Servicing

I recently lent some money to a company in which I am a director. Loan will be repaid by the company back to me on a monthly basis over 30 years, P&I. Loan is all properly documented.

When you apply for a loan with a bank in your personal name, will the bank recognise those repayments (receipts) from the company as income when assessing servicing?

Let’s say the repayment is $250 per month, with $200 being interest and $50 being principle.

Will the bank take the full $250, or just the $50 which is income (revenue)?

 

You can argue for it to be disregarded as it is an expense to the company but income to you, cancelling each other out

 

Not sure I explained it correctly. Here is a simpler example.

You lend $200k to a company, and the company buys a house. Company has no other liabilities other than the $200k it owes you (it does not borrow any other money from a bank). Company pays you back monthly over 30 years.

You then apply for a loan in you personal name. This has nothing to do with the company. When you apply, can you include the receipts from the company on the $200k you lent it?

In this example, how does any ‘netting off’ coming into play? Unless of course, you must declare the debt (repayments) by the company when applying for a loan in your personal name? Let’s say, for this example, you don’t own the company, but are merely a director. And let’s say, you have not provided a personal (director) guarantee for the $200k company loan to your personally. The company repayments are nothing to do with you (other than the fact, of course, you happen to be a director of the company).

 

Err, good point. Maybe it might be easier if I picked up a bit of extra income doing some Uber driving.

 

No because it is return of capital.
Interest also not counted as income to you but an expense to the company

 

Aren’t the repayments to me a mix of capital and income. Let’s say the company pays you under a normal P&I arrangement, say $300 per month, $250 of which is interest, $50 of principle. Now, I would declare the $250 as income to the ATO. Can it be declared to the bank as income when applying for a loan in your personal name?

 

not really because the lender will be looking at the company financials

 

Hi Harry,

Due to being a related party loan, banks will tend to look at this differently.

However if you do have an unsecured loan agreement between the company and yourself, a case can be put forward that the repayment is reliable cash flow to service a prospective loan.

You can also make a case that even though a component is capital repayment and the interest earned is the income, the bank should consider the capital repayment as a steady flow of untaxed cashflow. Banks calculate interest usually on the return on deposited funds. This is obviously not your case.