BORROWING CASH FROM YOUR BUSINESS

There are a wide variety of benefits you can enjoy when borrowing money from your business. But, in order to maximize your borrowing power, it is important that you understand how business loans work.

- If you business is well established it is an excellent option. If you are a new business, consider a startup loan.
- Utilizing a mortgage or bridge loan to aid in the purchase of a new home.
- Pay for your child's private school or college.
- Paying unexpected taxes, medical costs, family situations, divorce settlements, etc..
- Buy life insurance
- Purchase a new vehicle, second home, or some sort other high ticket item

ChoicePersonalLoans.com offers a variety of business loans for every need and purpose.

What advantages are there when borrowing from your company?
Interest rates associated with business loans are very low, 0% in some cases.

When borrowing from a company that you own, you will obtain very favorable interest rates. If loans of $10,000 and less, you can likely borrow interest free. Loans that are for more than $10,000 rates are still reasonably low. When rates are below the applicable federal rate established every month by the Internal Revenue Service (IRS), they will be attributed under a group of IRS rules.

Attractive terms - The trick hear is to structure a loan that is reasonable. For example, a loan with a 100-year term is not going to be looked at as a loan by the IRS. They will deem it as distribution and tax you.  Develop a loan with favorable terms, but do not be a pig about it.

No application process - When you borrow money from your company, you do not have to go through any sort application process. In addition, no credit check is required. This means you will get your cash fast!

No collateral required
- Banks usually require some sort of collateral when you borrow from them. The equates to not having to put your home or any assets at risk.

Regardless if your business loan is secured or unsecured, it is important to remember that there are factors that the IRS will examine when determining if your loan is a distribution or not.

What are the downsides of borrowing from your business?

It is important that you follow IRS business loan tax rules - Tax rules are hard to understand; increasing the administrative costs of managing the loan. You will be looking at trouble if you neglect to correctly document your loan or structure your loan unreasonably based on current market conditions.  A signed promissory note  including details regarding the amount loaned, the interest rate , and the term will be required by you and the company. As mentioned above, if the loan amount is under $10,000, the interest rate is zero, but not sole intent of the loan is to avoid federal taxes.

When deciding if a loan should be labeled as a dividend distribution for tax internet, the courts and IRS will look into the following factors:

- Does the loan agreement put a cap on the sum being advanced?
- Was security established for the loan?
- Was the shareholder in a position to pay off the loan?
- Was a payment schedule developed and maintained?
- Is there a maturity date?
- Was there interest charged?
- What is the borrowing amount?
- How much control does the shareholder control the business?
- What are the dividends and earnings history of the business? 
- Was there execution of a promissory note?

Very important! The interest you pay on the loan is considered income to the company and will be taxed as such.

Related Reading:
Handling Business Debts
Keeping Business Debt & Personal Debts Separate
Preparing for a Business Loan
How Business Loans Work
Reducing Work-Related Costs


 


 

 

 


 

 

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