Director Loans and Directors’ Loan Agreements in NZ

If you run a company in New Zealand, there’s a good chance money will move between you (as a director/shareholder) and the company at some point. Maybe you’ve covered a bill personally when cashflow was tight, or the company has paid for something that was really a private expense, or you’ve taken funds out intending to “square it up later”.

That’s where a director loan comes in - and where putting a directors loan agreement in writing can save you a lot of stress down the track.

In this guide, we’ll break down what a director loan is, why documenting it matters, what you should include in a directors loan agreement, and the practical steps to put one in place. We’ll also explain how you can access a free template (and when you should still get tailored advice).

What Is A Director Loan (And Why Do They Happen)?

A director loan is money owed between a company and a director (or someone closely connected to a director). It usually shows up in one of two ways:

You lend money to the company (the company owes you).
The company lends money to you (you owe the company).

Director loans are common in small businesses because founders often wear multiple hats - owner, director, and sometimes the “emergency finance department” when a supplier needs to be paid quickly.

Common real-world examples include:

You pay a business invoice on your personal credit card and want the company to reimburse you later.
You inject cash into the business to cover wages or stock.
The company pays for something personal (whether by mistake or because it felt simpler at the time).
You take drawings from the company during the year, planning to treat it as salary or dividends later.

None of these situations are automatically “wrong” - but they do become risky when they’re not documented properly and don’t align with your company’s governance and tax obligations.

As a baseline, remember: a company is a separate legal entity. Even if you own 100% of the shares, money moving between you and the company should be treated like a transaction between two separate parties.

Do You Need A Directors Loan Agreement?

Not every director loan needs a long, complicated contract, but if the amounts are meaningful, ongoing, or there’s any chance of future dispute (including with a co-founder, a new investor, or a liquidator), having a directors loan agreement is a smart move.

In plain terms, a directors loan agreement is a written document setting out:

who is lending and who is borrowing
how much is being lent
how and when it will be repaid
whether interest applies
what happens if repayment doesn’t occur on time

Here’s why it matters for NZ businesses.

1) It Keeps Your Company Records Clean

Director loans often end up recorded in your accounts as “amounts due to/from shareholder/director”. If the story behind those entries isn’t documented, things can get messy quickly - especially at year end, during due diligence, or when you change accountants.

A written directors loan agreement helps align everyone (you, your co-directors, your accountant, and your bank) on what the transaction actually is.

2) It Reduces Disputes Between Co-Founders Or Shareholders

If you’re building a business with another founder, cash contributions and withdrawals can become a sensitive issue. A directors loan agreement helps avoid misunderstandings like:

“Was that meant to be a loan, or was it equity?”
“Are you charging interest?”
“Why did you repay your director loan before paying other bills?”

This also ties into your broader governance setup, including your Shareholders Agreement and how decisions are approved and documented.

3) It Helps If The Business Is Sold, Restructured, Or Wound Up

Imagine this: your business takes off and you decide to sell. During buyer due diligence, the buyer asks for clarity on “director loan balances” shown in the accounts.

If the loan is properly documented, you can show:

the original amount
the repayment terms
whether it will be repaid at settlement (and how)

If it isn’t documented, it can delay the deal - or lead to a lower sale price because the buyer sees unresolved risk.

4) It Can Protect You If Things Go Wrong

We don’t like to be negative - but it’s important to be realistic. If a company becomes insolvent, transactions between the company and directors can be closely scrutinised.

A properly drafted directors loan agreement won’t fix everything, but it can help demonstrate that the arrangement was genuine, documented, and handled transparently (rather than being an informal “help yourself” approach). If there are warning signs of insolvency, it’s important to get legal and accounting advice early before making (or receiving) repayments.

What Should A Directors Loan Agreement Include?

A strong directors loan agreement should match how your business actually operates. That said, most agreements cover the following core items.

1) Parties And Capacity

The agreement should clearly state:

the company’s legal name and NZBN/company number (where relevant)
the director’s full legal name
whether the director is lending personally or via another entity (for example, a family trust)

This is especially important if the “director” isn’t the person actually funding the loan (e.g. a trust or holding company does).

2) Loan Amount And Advances

Some loans are a single lump sum. Others are “on demand” style facilities where you may advance funds over time.

Your directors loan agreement should specify whether:

the loan is a fixed amount, or
the loan is a facility up to a cap, with multiple advances

3) Purpose (Optional But Often Helpful)

For small businesses, it can be helpful to record the purpose (e.g. working capital, equipment purchase). This can help keep the transaction clearly “business related” and easier to explain later.

4) Interest (Yes Or No)

Some director loans are interest-free, particularly where the director is simply supporting cashflow. Others charge interest (for example, where the director wants the arrangement treated more like third-party lending).

If interest applies, make sure the agreement states:

the interest rate (and whether it’s fixed or variable)
how it’s calculated (daily/monthly)
when it’s paid (monthly, annually, capitalised)

If it’s interest-free, say that clearly as well - ambiguity is where problems start.

5) Repayment Terms

This is often the most important part. Repayment terms might include:

On demand: repayable whenever the lender asks (common, but can be risky for cashflow planning).
Fixed schedule: for example, monthly repayments over 24 months.
Event-based: repayable on a funding round, sale of business, or once certain revenue targets are met.

If you want flexibility, you can still build that in - but it should be written down so everyone understands the boundaries.

6) Default And What Happens If Repayment Isn’t Made

A good directors loan agreement should cover what happens if the company (or the director) doesn’t repay on time, including:

default interest (if any)
enforcement rights
cost recovery (legal costs on enforcement, where appropriate)

7) Security (If Any)

Some director loans are unsecured. Others are secured - meaning the lender has rights over certain assets if repayment doesn’t occur.

In NZ, security is often documented through a General Security Agreement (and typically registered on the PPSR).

Security can make sense where:

the loan amount is substantial
the company has other creditors and you want to clearly document your position (noting that priority can depend on timing, registration, and other creditor arrangements)
the director is effectively acting like a bank

It’s important to get advice here, because security and priority can become complex quickly (and the “paperwork” needs to match what is actually registered and enforceable).

8) Approval And Company Governance

A directors loan agreement should also fit within your company’s internal governance, including:

director approval processes
conflict of interest processes (because a director is on both sides of the transaction)
shareholder approval requirements (in some cases)

In practice, many companies document approval through a Directors Resolution, and sometimes also check whether the Company Constitution says anything specific about director transactions.

Tax And Compliance Considerations For Director Loans In NZ

This is the part many business owners don’t think about until their accountant raises a red flag at year end.

Director loans can create legal, accounting, and tax issues depending on how they’re used and recorded. The right approach will depend on your specific situation, so treat this as general information only - it’s not tax advice. If you’re unsure, speak with your accountant and/or check guidance from the IRD.

1) Keep Clear Separation Between Personal And Company Spending

Mixing personal and company expenses is one of the fastest ways to create director loan balances that you didn’t intend.

As a practical habit:

use a dedicated business account for business transactions
minimise personal purchases on the company card
keep receipts and clear descriptions for reimbursements

Even if you fully trust yourself (and your co-directors), the goal is to ensure the company’s records can stand up to scrutiny later - by an investor, a buyer, your auditor (if applicable), or the IRD.

2) Be Careful About “Repayments” That Look Like Something Else

Sometimes “repaying a director loan” can look, in substance, like:

salary/wages
dividends
shareholder drawings

Those categories can trigger different tax obligations and reporting. This is exactly why documenting the arrangement early (and keeping it consistent) matters.

3) Insolvency Risk And Director Duties

Directors have duties under the Companies Act 1993, including duties around acting in good faith and in the best interests of the company, and avoiding reckless trading.

If a company is under financial pressure, payments between the company and directors (including loan repayments, interest, and security arrangements) can be scrutinised - especially if other creditors are not being paid. Depending on the circumstances, certain transactions may be challenged, set aside, or result in personal liability risks.

This doesn’t mean director loans are “bad”. It just means you should treat them like any other serious business obligation, and get advice early if the company is facing cashflow issues.

How To Put A Directors Loan Agreement In Place (Step-By-Step)

If you’re thinking “we probably have a director loan situation already”, don’t worry - that’s very common. The key is to tidy it up properly now, so you’re protected from day one going forward.

1) Confirm What The Loan Actually Is

Start by clarifying:

Is the company the borrower, or are you the borrower?
What is the current balance (based on bookkeeping)?
Was it one amount or multiple advances?
Is it intended to be repaid, or converted into equity later?

2) Check Your Governance Documents

Before you sign anything, it’s worth checking your key company documents to make sure you follow the right approval process. This may include your Company Constitution and your Shareholders Agreement (if you have one).

If you don’t have those documents yet (or they’re outdated), it can be a good time to tidy up your legal foundations more broadly.

3) Decide The Commercial Terms

Set terms that make sense for your business, including:

interest rate (if any)
repayment schedule
whether repayments can be paused if cashflow dips
whether the loan is secured

A good rule of thumb: if you were explaining the arrangement to an outsider (like a buyer), would it sound clear and reasonable?

4) Document Approval Properly

Because a director has a conflict of interest in a transaction with the company, it’s important to document that the company has properly approved entering into the loan.

Many businesses do this with a Directors Resolution alongside the signed directors loan agreement.

5) Sign, Store, And Actually Follow The Agreement

Once signed, make sure you:

store it with your company records
give a copy to your accountant/bookkeeper
keep repayments and interest (if any) consistent with the terms

This last point is big. An agreement that isn’t followed in practice can be almost as problematic as having no agreement at all.

Free Directors Loan Agreement Template (And When To Get It Reviewed)

A template can be a helpful starting point - especially if you’re a small business trying to move fast and keep admin under control.

Our tip, though: don’t treat a directors loan agreement like a “tick-the-box” document. Director loans often interact with:

your company structure and shareholder arrangements
how you pay yourself (salary vs dividends vs drawings)
security interests and creditor priorities
future investment and exit planning

That’s why we recommend using a template only where the arrangement is genuinely simple (for example, a small, interest-free, unsecured loan with a clear repayment plan).

If any of the following apply, it’s worth getting tailored advice before you rely on a template:

the loan amount is significant
there are multiple directors/shareholders involved
the loan will be secured over business assets
the company is under cashflow pressure
you want the loan to convert into shares later
you’re preparing for a sale, investment, or restructure

If you’d like a free directors loan agreement template, get in touch and we can point you in the right direction - and if you want peace of mind, we can also help tailor it to your situation so it actually protects you (not just “looks like” the right document).

For broader clean-up (especially if you’ve got multiple agreements floating around), a Legal Health Check can be a practical way to identify gaps before they become expensive problems.

Key Takeaways

A director loan is money owed between a company and a director, and it’s very common in NZ small businesses - especially during early growth stages.
A written directors loan agreement helps protect both the business and the director by clearly setting out repayment terms, interest (if any), and what happens if something goes wrong.
Director loans should be recorded properly and handled consistently, because informal “we’ll sort it out later” arrangements can create disputes and tax/accounting issues.
Your directors loan agreement should match your governance documents and be supported by proper approvals, often documented in a Directors Resolution.
If the loan is significant, involves multiple shareholders, or is secured, it’s wise to get tailored legal advice rather than relying on a generic template.
Having clean, well-documented director loans can make business sales, investment, and due diligence much smoother.

If you’d like help putting a directors loan agreement in place (or want a free, no-obligations chat about the best way to structure a director loan for your company), you can reach us on 0800 002 184 or email team@sprintlaw.co.nz.

Director Loans And Directors’ Loan Agreements In NZ (Free Template)