Loan to friend from my limited company

A

annette1

Registered User
Messages
3
Hi All,

Hoping someone can advised me.
I want to give my friend a short term loan (6months bridging loan) to buy a property until he can get a mortgage approved. I will be giving this from my limited company. What are the tax implications if I do this?

Thanks

Annette
 
It's not a good idea.

This sort of thing would make Revenue suspicious and could trigger a Revenue audit.

If you have profits and cash in the company, then pay yourself a salary and give your friend a loan from your personal funds.

Brendan
 
Speak to your accountant. I imagine they would advise against it. If your friend doesn't even have mortgage apporoval you'd be taking a big risk lending them money.
 
I agree with Brendan. A personal loan to a third party using company funds. Revenue will be wondering what else you are using company funds for.

Even giving the friend a loan in the first place is a bad idea. What if they don't get mortgage approval? You are stuck with them owing you hundreds of thousands of euro for decades.
 
I’d take a slightly different tack, albeit ultimately advising against it.

You’d need tax and legal advice, which your friend should pay for as part of the loan. There are company law issues with loans from companies. The tax issues can be dealt with. I don’t subscribe to the “Revenue won’t like the look of it” argument. With something like this, it’s black and white; you can either do it, or you can’t, and in this case it’s possible.

Then there’s the fact that your friend will be limited in terms of who they can borrow from because it would be a remortgage; that makes the deal harder to exit.

Personally, I’d secure the loan against the property to protect myself. I wouldn’t charge interest, but I’d want my friend to cover any out of pocket expenses such as professional advice (these would be rolled up and added to the loan).

And for me, it would depend on who the friend is; I have a couple of friends who I would do it for, but the sensible advice is to run a mile.

I’ve actually seen this done by people and seen it blow-up. The borrower runs into trouble and then starts to act the maggot. And he or she rationalises it on the basis that the lender “has loads of money”.

So my advice is to run a mile, but if it’s someone you trust implicitly and you really want to do it, get a solid suite of professional advice and have an exit strategy, but be prepared for the whole thing to drag-on if the borrower can’t refinance.
 
Last edited:
Gordon Gekko said:
I’ve actually seen this done by people and seen it blow-up. The borrower runs into trouble and then starts to act the maggot. And he or she rationalises it on the basis that the lender “has loads of money”.
Click to expand...
I have seen that rationalisation as well. The money was lent in good faith by a friend to a friend with no doubts about it being returned. But then the borrower's spouse got involved and decided that there were higher priorities than repaying the loan.

These potential problems don't mean that you should not do it. But I would suggest the following if you do it:
1) Don't involve the company - make it a loan from yourself
2) You have to be prepared to lose it or at least wait a very long time to get repaid.

If it's a large amount, you should do a legal mortgage so that the property can't be sold or remortgaged without your loan being cleared first.

Brendan
 
We have a couple of rules we always observe.
Never mix business dealings and friends.
Never mix money matters and friends.

You'd be breaking both those rules. Aside from the technical reasons described above it's just a bad idea.
 
I think it's important to be alert to the potential problems - both the loss of your money and the loss of your friendship.

But if you have a friend who needs a short term loan to complete a purchase and you have money doing nothing, then there is no reason not to do it.

Brendan
 
Hello,

For what its worth, I'd add my name to the list of those people who are advising against giving this loan.

There's a reason why your friend can't get the mortgage today - what is it?

How are you guaranteed that they'll get the loan in 6 months time, draw it down, and repay you in full?

What happens if they don't get the loan, or change their mind on the initial arrangement with you?

The day any of us agree to lend money to a friend or family member, should also be the day that we write that money off, and accept that we are unlikely to ever see it again. That's not intended to be nasty, but is the more realistic approach.
 
I suppose the advantage of using the company funds is that it doesn’t cost twice as much to get the monies into the lender’s hands.

I’d prefer to lend €100k from my company and lose it versus losing €100k of my own money.
 
There are significant and punitive tax and company law implications attaching to any situation where a company offers a loan to a director or a person connected with them, including friends. If you're planning on doing this, you'll need proper professional advice on it. This will effectively boil down to you being advised not to touch it with a bargepole.
 
Last edited:
One item that I dont see discussed above is why the loan is needed. You say it is a short term loan for 6 months. To me this is an important question. 6 months I would think either they are on probation in their job or lack the savings history. Also how would the bank view this loan in their equation. Also worth considering is the tax impact of the company getting interest. If no interest is their a CAT issue. I would generally agree with Shakespeare here and I would not do it. Lending money to a friend especially a large amount changes the nature of the friendship they also tend to be tighter with money around you but in the long term if the loan goes bad how will they impact on the friendship.

Is there other options then the loan that could yield the same result or a similar result
 
As no one seemed to answer the original question, let me try.

"What are the tax implications if lend a person money from my company?"

If a company is lending money then it should be charging interest on the loan. I would think that the interest rate should be same as or higher then the central bank or ECB rates. This way you are charging a fair market rate.

There will be tax on the interest of the loan in the way of passive income tax. The rate for this is 25% and is filed within your Corporation Tax return.

Google: "corporation tax basis of charge"

Lending to a friend

The second part to note is that under company law ( not tax law ), you cannot lend money to a 'Connected Party'.

Google: "Companies Act, 1990 section 31"

Basically you cannot lend to the company directors, employees or relations of the directors. You can lend to a friend.
 
You must log in or register to reply here.
Menu
Log in
Register