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

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 Funds withdrawn from the company without such a structure should be regarded as income, with tax implications.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).

Small Business Loans Australia Study

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.

State (%)
No, but I would in future if needed2741292714
No, and I never would4634535338
State (%)
Yes, I would draw equity from my property2016162724
Yes, I would draw on personal cash savings2939334733
Yes, I would take out a personal loan1825182014
Yes, I would sell my car and or other high-value personal items594200
Yes, but in another way811970