Overview of Shareholder Loans

Shareholder loans are type of loan that is provided by shareholders in a company. With this type of loan, the shareholders lend money to a company for a specific amount of interest. Here are the basics of shareholder loans and how they work.

Shareholder Loans

Shareholder loans can be provided by individual investors or by a group of investors working together. This occurs when a business needs to borrow money and they are unable to borrow it from a traditional lender. Many times, new businesses will commonly use shareholder loans in order to raise money for specific purposes. The money that is borrowed will be paid back to the shareholders, with interest.

Struggling Businesses

Many times, shareholder loans are used in order to provide money to small businesses that are struggling. If a business is on the verge of bankruptcy, it may have a hard time getting financing from a traditional bank. At that point, the business might decide to rely on the shareholders to get it through the hard times financially. As an investor, this can be a very risky proposition. However, if you engage in this type of investing, you should be able to make some nice returns.