Record a loan from an individual

This article explains the steps you need to take in FreeAgent if your business has borrowed money from an individual.

There are two ways you can process a loan from an individual. The first option is to deal with it like a loan from a bank or government scheme and add a new liability category in FreeAgent. However, please be aware that if your business is a limited company, using this approach will not trigger FreeAgent to create a form CT600A if the loan becomes overdrawn.

The alternative option, particularly if the loan is from a director or family member of a director, is to add that individual as a user to your FreeAgent account and explain the bank transactions as detailed below. 

Please note that you need to have level 6 access or above to your FreeAgent account to explain bank transactions.

1. Add the individual as a user

Select 'Settings' from the drop-down menu in the top-right of your FreeAgent account and then select 'Users'.

Select 'Add New User'.

Enter the relevant details for the individual, including their level of access which you can set to zero if you don’t want them to have access to your account, and select ‘Create new user’ to complete the process. Find out more about how to add a new user.

2. Explain the bank transactions

Next, you will need to explain the bank transactions associated with the loan that are paid into and out of your business bank account.

Money paid into your business bank account

Navigate to the 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop-down menu.

Choose the relevant bank account from the list.

Select the transaction that you would like to explain.

Select 'Money Received from User' as the transaction ‘Type’ and choose the individual from the ‘Received from’ drop-down menu. Please note that this option will only be available for business bank accounts. You won’t see this option if the bank account has been marked as personal or for a user who has been allocated the role of ‘Accountant’.

If your business is a limited company, select 'Payment to Director Loan Account' from the ‘Category’ drop-down menu and select ‘Explain Transaction’ to complete the process.

If your business is a sole trader, partnership or LLP, select ‘Capital Introduced’ from the ‘Category’ drop-down menu and select ‘Explain Transaction’ to complete the process. 

Regardless of which way you explain the transaction, a record of the bank transaction being explained will also appear in your Audit Trail report.

Money paid out of your business bank account

When you pay the individual back, navigate to the relevant transaction, select 'Money Paid to User' as the transaction ‘Type’ and choose the individual from the ‘Payment to’ drop-down menu.

If your business is a limited company, select 'Payment from Director Loan Account' from the ‘Category’ drop-down menu and select ‘Explain Transaction’ to complete the process.

If your business is a sole trader, partnership or LLP, select ‘Drawings’ from the ‘Category’ drop-down menu and select ‘Explain Transaction’ to complete the process.

Regardless of which way you explain the transaction, a record of the bank transaction being explained will also appear in your Audit Trail report.