There are two options for further issue of shares:
1. Rights issue u/s 62(1)(a)
2. Private placement/preferential allotment u/s 62(1)(c) read with Sec.42
Rights issue is a simpler mode and requires only 2 returns to be filed with ROC as against 4 returns in private placement. Hence it is advisable.
There is a general misunderstanding in case of rights issue. Many of us think that we have to allot shares to all existing shareholders in case of rights issue. It is not correct. The Act only requires that new shares must be 'offered' (and not 'allotted') to all shareholders. It is not necessary that all shareholders have to apply for the shares as per the letter of offer. Even one shareholder can accept (either fullly or partly) the offer and others may decline or even renounce in favour of someone else.
It will be advisable to refund the loan by cheque and complete formalities for rights issue. In case the company does not have funds to repay, it can be planned in such a manner that cheque for share application money is given against the cheque for refund of loan on the same day. It can be possible if both the director and company have bank account in the same branch of the Bank.