A business loan is money your business borrows and repays under a written agreement. How a loan is recorded affects both your books and your tax return, so it's worth confirming whether a loan belongs to your business or to you personally. This article applies to both LLC and S Corp members.
How business loans show up on your books
Loan money isn't income, and repaying the loan isn't fully an expense. Each part is recorded differently:
| What happens | On your books | On your taxes |
| You receive the loan money | Recorded as a liability, meaning money the business owes | Not income, so it isn't taxed |
| You make a payment (interest portion) | Recorded as a business expense | Generally deductible |
| You make a payment (principal portion) | Reduces the loan balance | Not deductible |
How business loans affect your taxes
Interest on a business loan is generally deductible, which can lower your taxable profit. Where it's reported depends on your tier:
- LLC members: interest is generally deducted as a business expense on your Individual Tax Return (ITR), alongside your other business income and expenses.
- S Corp members: interest is generally deducted on your Business Tax Return (BTR), and the loan balance is tracked on the business balance sheet.
If you used the loan to buy equipment or a vehicle, that purchase may be deducted separately over time through depreciation. Your Collective team can help you sort out how that applies to you.
How to tell if a loan is a business loan
In most cases, a loan is a business loan when the business is the borrower. Check your loan agreement against these points:
| What to check | Business loan | Personal loan |
| Borrower | Your business's legal name and EIN | You, with your Social Security number |
| How you signed | With your title (such as "Owner" or "Managing Member") on behalf of the business | Your name only |
| Where the money goes and who pays | Business bank account | Personal account or card |
| Purpose and collateral | Business use, secured by business assets like equipment | Personal use, or secured by personal assets like your home |
A personal guarantee doesn't make it a personal loan. Most lenders ask small business owners to personally guarantee a loan. If the business is the borrower, it's still a business loan.
Some situations fall in between, such as a personal credit card used for business costs, a car loan in your name for a vehicle the business uses, or money moved between you and your business. Let us know about these so they're recorded correctly.
What to share with your Collective team
- Your signed loan agreement or promissory note, so your team can confirm who the borrower is and the payment terms.
- A year-end statement each year showing the interest paid and the loan balance on December 31.
Upload these documents to your Collective dashboard.
Next steps
If you're not sure whether a loan is business or personal, or how it should be recorded, reach out to your Collective team. They're here to help.
The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice.