Do Australian business directors borrow from personal or business funds to solve financial troubles?

A Small Business Loans Australia Study

December 2022

Small Business Loans Australia commissioned a survey of 210 SME business directors to find out if they have ever rescued their businesses using personal funds, or solved personal problems by borrowing from the business.

Australian businesses are permitted to loan 'distributable funds' to directors in the form of a ‘director’s loan’, which requires formal approval by shareholders and a loan agreement detailing the amount, repayment structure, and the tax office's benchmark interest rate. Funds withdrawn from the company without such a structure should be regarded as income, with tax implications. On the other hand, there are no tax implications nor are formal arrangements needed to loan personal funds to a business in need. However, this move can come with enormous risks, particularly if those funds are tied to personal assets.

Respondents were asked if they had borrowed money from their business, or would, to resolve personal financial issues and if they would draw on personal finances if their business needed funds, including drawing equity from property, using personal savings, taking out a personal loan or selling high-value items.

Small Business Loans Australia surveyed 210 owners and senior decision- makers across the full business spectrum: micro (1-10 employees), small (11-50 employees), medium-sized (51-200 employees) and large (200+ employees).

Have directors ever borrowed money from their businesses to help their personal finances, or resolve personal financial issues?

Small Business Loans Australia found that over half (54 per cent) of directors have, or would, borrow funds from their businesses to resolve personal financial troubles. Specifically, 26 per cent had already borrowed from their businesses and 30 per cent would in the future if needed.

Forty-four (44 per cent) of businesses had never loaned money from their business to resolve personal financial issues, and never would.

By business size.

Micro businesses are least likely to ever mix personal and business finances, with 50 per cent specifying they had never borrowed money from their businesses, and never would. This was followed by 47 per cent of medium- sized businesses and only 26 per cent of small businesses.

1 in 3

small businesses have borrowed money from their business to resolve personal financial troubles.

By State.

When comparing responses across the major States, SMEs in Victoria are most likely to borrow money from their businesses to aid personal finances – with 66 per cent having borrowed previously or will in the future. This is followed by 62 per cent of West Australian businesses, 54 per cent of NSW and an equal 47 per cent of Queensland and South Australian businesses.

Response
	State (%)
	NSW	VIC	QLD	SA	WA
Yes	27	25	18	20	48
No, but I would in future if needed	27	41	29	27	14
No, and I never would	46	34	53	53	38

Would directors draw on their personal finances if their businesses were in financial difficulty?

Businesses could nominate from the following personal finances they would draw on to aid their businesses, if needed:

Equity from their property (by refinancing their mortgages)
Personal cash savings
Personal loan
Selling a car or other high-value personal item
Other.

The survey found that 72 per cent of respondents would use their personal expenses in some way if their business was experiencing financial difficulty. Personal cash savings was the most popular choice, chosen by over a third (34 per cent) of respondents, followed by a fifth (19 per cent) of businesses who would draw equity from their property or take out a personal loan. Less significantly, 8 per cent of SMEs would use their personal finances in another way, while 6 per cent would sell their car or other high-value personal items.

By business size.

More small business directors (82 per cent) have, or would, contribute personal finances to their businesses in some way, followed by 70 per cent of directors of micro business directors and 66 per cent of medium-sized businesses.

Micro business directors are most likely, by a significant margin, to draw on cash savings - chosen by half (48 per cent), compared with 33 per cent of small business directors and only 18 per cent of directors of medium-sized businesses. Directors of small and medium-sized businesses felt more comfortable taking out a personal loan, chosen by 28 and 29 per cent respectively, compared with 10 per cent of micro business directors.

Response
	State (%)
	NSW	VIC	QLD	SA	WA
Yes, I would draw equity from my property	20	16	16	27	24
Yes, I would draw on personal cash savings	29	39	33	47	33
Yes, I would take out a personal loan	18	25	18	20	14
Yes, I would sell my car and or other high-value personal items	5	9	4	20	0
Yes, but in another way	8	11	9	7	0
No	30	18	38	20	33