For a business owner, finding ways to save money is always a good idea. While many may not immediately see the value of taking out a small business loan when considering ways to save money, there are important tax implications to consider that may help you expedite business growth and reap benefits around tax season. Understanding when and how business loan taxes are deductible can help optimize financial planning and reduce taxable income.

Key Considerations

The funds received and used from a business loan to advance business operations are not enough to qualify for a tax deduction.
Business loan interest may be deductible under certain criteria.
Be wary of conditions that impact tax deductibility, such as debt consolidation or refinancing.

When Is a Business Loan Tax Deductible?

Business loans can be tax deductible under certain circumstances. The primary criterion is that the loan must be used for legitimate business purposes. Below is a breakdown of when business loan taxes are and are not deductible:

When Business Loan Interest Is Tax Deductible

Interest paid on business loans is generally tax deductible as a business expense. This applies to loans used to finance operational costs, purchase inventory, acquire assets, or expand the business.

Choice of Lending Partner

Choosing a reputable lender can impact the deductibility of loan expenses. Loans obtained from recognized financial institutions or through government-backed programs like the Small Business Administration (SBA) often qualify for full interest deduction.

Use of Loan

To qualify for tax deductions, the loan must be used solely for business purposes. Documentation proving the allocation of loan funds towards business expenses is crucial for IRS compliance.

Loan Repayment

Only the interest portion of the loan repayments is deductible, not the principal amount. Therefore, it is essential to ensure accurate records of interest payments made throughout the tax year.

When Business Loan Interest Is Not Tax Deductible

While interest on business loans is generally deductible, there are instances where it may not be.

Refinancing Debt

Interest incurred from refinancing existing business debt or debt consolidation may not be fully deductible. Specific IRS rules apply to determine the deductible portion of refinanced loans.

Fees

Certain fees associated with loan processing or application fees may not qualify as deductible expenses. It’s important to distinguish between deductible interest and non-deductible fees.

Capital Interest

Interest incurred for purposes unrelated to business activities, such as personal investments or non-business ventures, is typically not deductible.

How BHG Financial's Financing Options May Be Tax Deductible

BHG Financial offers accomplished professionals specialized financing yo to $500,000^1,2 for their businesses, which can be used for operational growth. With repayment terms of up to 12 years¹, our secured small business loans can be used for debt consolidation, business acquisition, working capital and more. Our commited, U.S.-based concierge service is available around your schedule so that you can rely on our team to serve your needs for every opportunity or bump in the road.

Get started by viewing your personalized estimate using our payment estimator.

Business Loan Tax Deductible FAQs

No, only interest from loans used exclusively for business purposes is deductible. Personal expenses financed through a business loan do not qualify for tax deductions.

Yes, the IRS imposes certain limitations, especially for high-income taxpayers and businesses subject to Alternative Minimum Tax (AMT). Consulting with a tax advisor can help navigate these limitations.

Maintain records of loan agreements, statements showing interest payments, and evidence that loan proceeds were used for business purposes. This documentation is crucial for compliance with the IRS.

¹Terms subject to credit approval upon completion of an application. Loan sizes, interest rates, and loan terms vary based on the applicant's credit profile. Finance amount may vary depending on the applicant's state of residence.

² BHG Financial business loans typically range from $20,000 to $250,000; however, well-qualified borrowers may be eligible for business loans up to $500,000.

Business Loan Repayment Example: A $94,695 commercial loan with a 9-year term and an APR of 14.8% would require monthly payments of $1,633.

No application fees, commitment, or impact on personal credit to estimate your payment.

For California Residents: BHG Financial loans made or arranged pursuant to a California Financing Law license - Number 603G493.

IMPORTANT INFORMATION ABOUT ESTABLISHING A NEW CUSTOMER RELATIONSHIP To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies every customer. What this means for you: When you apply for a loan, we will ask for your name, address, date of birth, social security number and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents. If all required documentation is not provided, we may be unable to establish a customer relationship with you.

Are Business Loans Tax Deductible?