Often yes, but only if the lending fits one of the exclusions in the Moneylenders Act 2008. A company that lends only to other companies, only to its own employees as an employment benefit, or lends in the course of a business whose main purpose is not lending, is generally an “excluded moneylender” and needs no licence. Lending to outsiders as a business without fitting an exclusion is a criminal offence and the loans become unenforceable. Separately, the Companies Act restricts loans to directors and to companies they control, whatever the Moneylenders Act says.
This guide is for directors and owners of Singapore companies that are not in the lending business but want to lend to a related company, a customer, a director or staff.
Why does an ordinary company need to think about moneylending law?
Section 5 of the Moneylenders Act 2008 prohibits anyone from carrying on, or holding themselves out as carrying on, the business of moneylending in Singapore unless they are licensed, an excluded moneylender, or an exempt moneylender. A “moneylender” is a person who carries on the business of moneylending, whether or not it also carries on another business.
Two features make this relevant to ordinary companies:
- The presumption. Under section 3, anyone other than an excluded moneylender who lends a sum of money in return for a larger sum being repaid is presumed to be a moneylender until the contrary is proved. If your company charges interest on loans to outsiders and the loan is challenged, the company may have to prove it was not in the business of moneylending.
- The consequences. Under section 19, an unlicensed moneylender commits an offence. A body corporate faces a fine of between S$50,000 and S$500,000. The loan contract, and any guarantee or security for it, is unenforceable, and money lent cannot be recovered through the courts. Section 89 also makes directors and officers liable where the company’s offence was committed with their consent or connivance, or was due to their neglect.
The practical risk for most businesses is less about prosecution and more about the second point: a borrower who stops paying may argue the loan cannot be enforced at all.
Which companies are “excluded moneylenders”?
An excluded moneylender is outside the licensing requirement and does not need to apply for that status. The definition in section 2 includes banks and other financial institutions regulated by MAS, registered credit societies and licensed pawnbrokers, and these categories that matter to ordinary companies.
| Exclusion in section 2 | What it covers | Watch out for |
|---|---|---|
| Lends solely to its employees as a benefit of employment | Staff loans, salary advances and similar benefits | “Solely”: lending to non-employees as well, such as former staff or employees’ relatives, may take you outside it |
| Lends solely to accredited investors | Lending only to persons who are accredited investors under the Securities and Futures Act 2001 | You need to verify and document investor status |
| Lends solely to corporations, limited liability partnerships, or trustees of business trusts or REITs (for those trusts) | Intercompany loans and loans to corporate customers or suppliers | A single loan to an individual can break the “solely” condition |
| Carries on a business whose primary object is not lending, and lends in the course of and for the purposes of that business | Lending that supports the company’s real trade | The loan must genuinely serve the trading business, not be a separate profit stream |
A person may also combine the employee, accredited investor and corporate lending categories. Outside these exclusions, a company can apply to the Ministry of Law for an exemption under section 91, or may fall within a class exemption under section 92. The Registry of Moneylenders administers licences and exemptions.
How do the common lending scenarios work in practice?
Lending to a related company
Loans between group companies usually fall within the exclusion for lending solely to corporations, provided the lender does not also lend to individuals. The Companies Act restriction in section 163 on loans to companies in which directors hold 20% or more of the voting power does not apply where the borrower is the lender’s subsidiary, holding company or fellow subsidiary. Interest on intercompany loans raises tax questions; our guide to arm’s length interest on intercompany loans covers transfer pricing, and if the borrower or lender is overseas, check withholding tax on interest payments.
Lending to a customer or supplier
If the counterparty is a company, the corporate lending exclusion usually applies. If it is a sole proprietor or individual, the company would need to rely on the “business not primarily lending” exclusion: for example, a supplier funding a distributor’s fit-out to secure future orders. The closer the loan is to the trade, and the less it looks like a standalone interest-earning activity, the stronger that position. Regular advertised loans to the public are a different matter.
Lending to staff
Salary advances and staff loans given as an employment benefit are excluded, if the company lends only to employees. Put the terms in writing, including how repayments will be deducted, and make sure any salary deductions are permitted under the Employment Act and agreed by the employee.
Lending to a director
Here the Companies Act is usually the bigger issue. Section 162 of the Companies Act 1967 prohibits a company, other than an exempt private company, from making a loan or quasi-loan to a director of the company or of a related company, or giving a guarantee or security for such a loan. “Director” includes the director’s spouse and children. Limited exceptions cover expenses incurred for the company’s purposes, a home loan for a full-time employee director, and approved employee schemes, some of which require prior shareholder approval. A director who authorises a prohibited loan commits an offence, and the company can still recover the money. Our guide to section 162 and loans to directors explains the exceptions in detail.
An exempt private company is, broadly, a private company with no more than 20 members, none of which is a corporation (subject to limited exceptions). Even where section 162 does not apply, the director must disclose the conflict and the board should approve the loan on commercial terms, as explained in our article on directors’ conflicts of interest and related party transactions.
What about loans to companies a director controls?
Section 163 makes it unlawful for a company (other than an exempt private company) to lend to, guarantee a loan to, or enter into a credit transaction for the benefit of another company, LLP or VCC in which its directors together hold 20% or more of the voting power, unless shareholders approve it beforehand at a general meeting where the interested directors and their family members abstain. Similar rules apply to such entities formed outside Singapore. Approval given after the loan is made does not count. As noted above, loans within a holding company group are excluded from this section.
Steps to take before your company lends money
- Identify the borrower type. Company, LLP, employee, director (or a director’s family member), accredited investor or individual outsider.
- Check the Moneylenders Act position. Confirm which exclusion applies and that the company’s overall lending pattern still meets any “solely” condition.
- Check the Companies Act position. Is the company an exempt private company? Is the borrower a director, a director’s family member or a company the directors control? Is prior shareholder approval needed?
- Manage conflicts. Interested directors declare their interest; the board or shareholders approve by resolution with the correct abstentions.
- Document the loan. Sign a written loan agreement before funds move.
- Review the tax position. Consider arm’s length interest for related parties, withholding tax on interest paid overseas, and how the loan appears in the financial statements.
- Record and monitor. Keep the agreement, resolutions and repayment records, and follow up arrears promptly.
What should the loan agreement include?
- Names of lender and borrower, and the purpose of the loan
- Principal amount and drawdown method
- Interest rate (or a clear statement that the loan is interest-free), and how interest is calculated
- Repayment schedule, prepayment rights and what happens on default
- Any security or guarantee, with the right party signing
- Representations about the borrower’s status, for example that it is a company
- Governing law and how disputes will be resolved
- Signatures by authorised signatories, with the approving resolution attached
Undocumented director loans often cause difficulty later, for example in a liquidation, when it is unclear whether money was a loan, salary or capital. A short signed agreement and a board resolution avoid most of these arguments.
Example: a hypothetical trading company
Example: a hypothetical Singapore trading company, Harbour Trading Pte Ltd, has spare cash. It plans three loans: S$200,000 to its Malaysian subsidiary, S$50,000 to a corporate customer to help it buy stock from Harbour, and S$30,000 to a long-standing customer who trades as a sole proprietor. It also receives a request from one of its directors for a personal loan.
The subsidiary loan and the corporate customer loan would fit the exclusion for lending solely to corporations, but the loan to the sole proprietor would break the “solely” condition. Harbour therefore considers whether that loan genuinely serves its trading business, and decides to restructure it as extended credit terms on future purchases instead. Because Harbour has a corporate shareholder, it is not an exempt private company, so the director’s personal loan would be prohibited by section 162 unless an exception applies; the board declines it. The subsidiary loan is documented with an interest rate reviewed for transfer pricing, and Harbour checks the Malaysian withholding tax position on interest before signing.
Frequently asked questions
Does an interest-free loan avoid the Moneylenders Act?
The presumption in section 3 applies where a larger sum is to be repaid, so an interest-free loan does not trigger it. The question is still whether the company carries on a business of moneylending, but interest-free loans are far less likely to be treated that way.
Do we need to register as an excluded moneylender?
No. Excluded status arises from the facts. Keep records showing why the company fits the exclusion, such as the borrower list and the business purpose of each loan.
Can a one-off loan to a friend of the director cause problems?
A single, isolated loan is unlikely on its own to amount to carrying on a business, but the presumption shifts the burden to the lender if interest is charged. A company’s funds should not be lent for a director’s personal purposes; that raises director duty issues as well.
Can the company recover a loan that breached section 162?
Yes. Section 162 states that nothing in it prevents the company from recovering the amount lent. The directors who authorised it may still face liability.
What if lending to outsiders becomes a real business line?
Then the company should consider a moneylender’s licence or an exemption before it starts. Our guide to licensing a moneylending business explains that route.
Need help with a company loan?
If your company, or you as a director or shareholder, is dealing with a proposed loan to a related company, customer, employee or director, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles regulatory compliance. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
The Raffles Corporate Services Editorial Team, Raffles Corporate Services