Plain definition
A shareholder loan is money a shareholder lends to the company, or in some arrangements money the company lends to a shareholder. The balance is debt, not an additional share subscription, unless the parties formally convert it. Its interest, repayment order, security, and treatment on a future investment round depend on the written terms and applicable requirements.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A founder advances so the company can pay suppliers before a customer pays. The board records it as a loan repayable after bank debt and carrying no interest under its agreed terms. When the customer pays , the company can repay the founder only if doing so does not breach the bank facility or leave payroll unfunded. The cash receipt does not automatically make repayment prudent.
| Cash received from customer | |
|---|---|
| Planned payroll | |
| Potential shareholder-loan repayment | |
| Cash after both payments |
Calling a transfer ‘temporary’ without recording its terms leaves both the cash forecast and ownership picture unclear.
Why it matters
Founder funding is often fast, which makes it easy to confuse with equity. The distinction matters when the company seeks outside investment, calculates liabilities, or faces a cash squeeze. An undocumented repayment claim can surprise other investors and create disagreement about who is paid first.
Practical consequence
Document the lender, amount, date, interest if any, repayment trigger, ranking against other debt, and conversion rights. Record the balance separately from share capital and include it in the cash forecast. Before repayment, check contractual restrictions, taxes and legal requirements relevant to the company, and whether the payment would weaken operating liquidity.