Intercompany Loans, SPVs and Property Finance: What Lenders May Want to Understand

The Client Situation

The client operates several companies under common ownership. One entity has surplus cash; another owns or will acquire property. Instead of extracting money personally and reinvesting it, the client wants the first company to fund the second.

The proposed transfer may support:

• a deposit for a buy-to-let or commercial property;
• stamp duty, professional fees and refurbishment;
• repayment of bridging or development finance;
• equity required for a refinance;
• working capital while a property stabilises;
• an acquisition through a newly formed SPV; or
• movement of liquidity between a holding company and subsidiaries.

The commercial logic may be clear, but the lender cannot treat separate legal entities as one wallet. It must understand the precise debtor, creditor, ownership, purpose, terms and consequences of default.

Why “It Is All Group Cash” Is Not Enough

An underwriter needs both source of funds and path of funds. HMRC’s anti-money-laundering guidance describes source of funds as the provenance of the money used for the specific transaction—not merely the bank account from which the final payment arrives.

If a deposit reaches the SPV from a holding company, the enquiry may continue backwards:

• How did the holding company obtain the money?
• Was it trading profit, a property sale, refinance, dividend, shareholder funding or another loan?
• Did the money pass through further connected entities?
• Were tax liabilities and creditor needs allowed for?
• Is any part borrowed from a third party?
• Do existing lenders restrict onward lending?
• Is the transfer consistent with the companies’ stated activities and records?

A clean audit trail is especially important where the remitting company is overseas, recently incorporated, dormant, loss-making or funded shortly before the property transaction.

Build a One-Page Funds Map

The map should reconcile to company accounts, current ledgers, bank statements, Companies House ownership and the mortgage application. If money takes three steps, show all three.

What the Mortgage Lender May Want to Understand

Borrower leverage

The SPV may appear to contribute a 25% deposit, but if the entire amount is repayable to another company, its economic leverage exceeds the mortgage loan-to-value. The lender may include, ignore or subordinate the connected debt depending on policy.

Repayment pressure

If the intercompany loan is repayable on demand, the creditor could remove liquidity immediately after completion. The lender will ask whether rental income can meet mortgage payments, property costs and connected debt service.

Control and conflicts

Common directors may sit on both sides of the transaction. The solicitor and accountant should consider authority, conflicts, corporate benefit and required approvals. The mortgage lender needs confidence that documents are valid and enforceable.

Origin and financial crime checks

The underwriter and conveyancer may trace funds through each entity and beneficial owner. An internal transfer does not replace evidence of the original economic activity that generated the money.

Existing security and covenants

A trading-company bank may hold a debenture over present and future assets or restrict connected-party loans. The company may not be free to advance cash simply because it sits in the account.

Exit and future flexibility

The client may plan to repay the connected company from rent, sale or refinance. The lender tests whether that exit is realistic and whether early repayment of the intercompany debt conflicts with mortgage conditions.

Terms That Should Not Be Left Implied

An undocumented current-account balance can become a de facto long-term loan. HMRC’s manuals note that connected-company balances may accumulate even where they began as short-term trading amounts. The professional team should describe the substance rather than relying on a convenient label.

Security, Priority and the Meaning of “Unsecured”

A connected loan described as unsecured can still compete for cash. The creditor may have a contractual right to demand repayment even without a charge over the property. A mortgage lender may therefore require:

• the connected loan to be interest-free during the mortgage term;
• no repayment without prior lender consent;
• postponement behind the mortgage debt;
• a formal deed of subordination or priority;
• waiver of enforcement rights while the mortgage remains outstanding;
• the lender company to join acknowledgements or legal documents;
• corporate or personal guarantees;
• a debenture over the SPV; or
• evidence that an existing debenture holder consents.

The solicitor must explain what is being postponed and whether repayment remains possible in practice. The accountant should reflect the agreed terms consistently in forecasts and accounts.

Can the Lending Company Afford to Advance the Money?

The SPV’s deposit is only one side of the transaction. The creditor company may lose liquidity needed for Corporation Tax, VAT, payroll, creditors, capital expenditure or a downturn. Its own bank may calculate covenants after the advance or prohibit it entirely.

Prepare a post-transfer assessment covering:

• cash before and after the advance;
• tax due dates and amounts;
• minimum working-capital requirement;
• seasonal cash needs;
• trade-creditor and payroll commitments;
• existing loan amortisation and covenants;
• planned dividends or director withdrawals;
• ability to absorb delayed intercompany repayment;
• downside trading assumptions; and
• concentration risk if property and trading activities share owners.

A company can be profitable but unable to lend safely. Conversely, a well-capitalised holding company may have a clear and supportable investment purpose. The evidence must show which situation applies.

What the Accountant May Need to Provide

Worked Example: £300,000 From Trading Company to Property SPV

A husband and wife own a profitable consultancy. They also own a new property SPV in the same proportions. The consultancy has £900,000 cash and proposes to lend £300,000 to the SPV. The SPV will buy a £1 million investment property using a £750,000 mortgage.

The first presentation says: “25% deposit from group funds.” A lender-ready presentation goes further:

• £300,000 was generated from taxed trading profits over three years;
• the consultancy retains £600,000 before its next tax and operating commitments;
• a post-advance downside forecast shows adequate working capital;
• the loan is approved and documented between named companies;
• £250,000 funds the deposit and £50,000 funds SDLT, fees and works;
• the loan has no scheduled cash repayment during the initial mortgage period;
• it will be subordinated where the property lender requires;
• there is no existing covenant preventing the advance; and
• both ledger sides and the complete bank path reconcile.

The mortgage lender still assesses rental coverage, valuation, property, directors, shareholders and portfolio exposure. But it can now understand the deposit as a transparent connected-party loan rather than unexplained leverage.

If the consultancy cannot afford to leave the money outstanding, the structure may be unsuitable even if the SPV mortgage itself passes rent coverage. The accountant’s group cash-flow analysis is therefore part of the credit story, not an appendix.

Alternative Routes the Professional Team May Compare

The intercompany loan is not the only possible route. Depending on tax, law, ownership and lender policy, advisers may consider:

• equity subscription into the SPV;
• dividend to a holding company followed by investment;
• personal extraction followed by a director or shareholder loan;
• capital reduction or distribution where lawful;
• direct acquisition by the cash-rich company;
• external mortgage or commercial borrowing by the SPV;
• release of equity from an existing property company;
• formal group facility or parent support; or
• deferring the transaction to preserve trading-company liquidity.

Each route changes tax, control, creditor exposure and lender appetite. Willow tests financeability; the accountant and solicitor determine whether the route is appropriate.

Portfolio and Layered-Ownership Effects

Where several SPVs owe money to a holding or trading company, the lender may request a complete schedule rather than assess the target SPV in isolation. Include each company’s properties, mortgages, rent, intercompany balances, guarantees and security.

Willow’s published £3.2 million portfolio case shows why a complete corporate chart and portfolio schedule matter when an SPV sits below another company and a trust appears higher in the ownership. The published outcome was driven by specialist lender selection and transparent structure evidence; it should not be treated as a precedent that every layered or connected-loan case will be accepted.

Where the Professional Boundaries Sit

The accountant advises on accounting treatment, tax, distributable reserves, connected-party disclosures and group cash flow. The solicitor advises on directors’ duties, corporate benefit, conflicts, approvals, agreements, security, priority, covenants and enforceability.

Willow identifies lenders whose policies can accommodate the source, ownership and loan terms; advises on mortgage or property finance; and coordinates underwriting. The lender and conveyancer complete their own source-of-funds, beneficial-ownership and security checks.

Willow does not recommend moving money between companies or choosing an accounting or tax treatment. Finance testing should occur before the professional team implements the transfer.

Common Mistakes to Avoid

• Calling the deposit group cash: separate entities and liabilities disappear from the explanation.
• Showing only the final bank transfer: the original economic source remains unknown.
• Leaving terms undocumented: repayment and priority become ambiguous.
• Ignoring the creditor company’s cash needs: the property purchase weakens trading operations.
• Assuming connected debt is equity: the SPV’s real leverage is understated.
• Overlooking existing debentures: another lender may control the asset or prohibit the loan.
• Backdating agreements: documents should reflect real decisions and timing.
• Using mismatched ledgers: debtor and creditor balances must reconcile.
• Repaying connected debt immediately: the mortgage lender may prohibit it.
• Ignoring interest and tax: cash flow and accounts become unreliable.
• Changing structure after offer: lender approval may no longer apply.
• Waiting until conveyancing: source-of-funds and priority work can delay completion.

When to Involve Willow

Refer the client when:

• a trading company will fund a property SPV;
• a holding company or sister company supplies the deposit;
• the advance is repayable on demand;
• no written loan terms currently exist;
• another lender holds a company debenture;
• the funds pass through more than one entity;
• the creditor is overseas or recently incorporated;
• intercompany balances are material or do not reconcile;
• the client expects rent or refinance to repay the loan;
• several SPVs rely on the same cash-rich company;
• a mortgage lender requests subordination or guarantees; or
• contracts may be exchanged before lender treatment is confirmed.

An anonymous first outline should show the ownership chart, lender company, borrower SPV, economic source, amount, purpose, terms, intended repayment, existing security, property value, mortgage, rent and timing.

Relevant Willow Case Evidence

For a capital-raising example where an existing SPV property funded a separate conversion project, see Willow’s buy-to-let equity release case. The finance route does not by itself determine how released funds should move between entities.