Tax implications of business loans

Learn everything you need to know about business loans and tax.

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If you’re considering taking out a loan for your business, it’s important that you understand how it may affect your tax reporting. Find out if you’ll need to pay tax or even get tax benefits when getting a business loan.

Is a business loan considered taxable income?

No, business loans are not generally considered business income as it is money that you have borrowed and are paying back as opposed to money that the company has earned.

The one major exception is if some or all of your debt is forgiven by the lender or creditor. The amount that is forgiven would then be considered income for tax purposes.

Are business loans tax deductible?

While a business loan itself is not tax deductible, you should be able to claim any interest you pay on the loan as a tax deduction, provided the loan is used for business purposes. If the loan is used to cover business and personal expenses, you would only be able to claim the interest on the amount of the loan that was used by business expenses.

Can I get a business loan to pay my VAT or tax bill?

Yes, some lenders offer business finance to help cover your tax bill if your business does not have the capital available. However, if your business finds itself unable to pay its regular tax bills, going into debt may not be advisable.

You could consider invoice financing, or even a business line of credit, to cover your tax payments if your business has irregular cash flow.

Director’s loans

Just like a normal business loan, if you lend money to your own business through a director’s loan, the company does not have to pay tax on the loan. Any interest you charge would be considered a business expense and therefore could be claimed as a tax deduction for your company.

However, you will need to declare any interest you receive on the loan as personal income, which means you will have to report it when you complete your tax return.

Compare business loans

Table: sorted by representative APR.
Name Product Loan amounts Loan terms Representative APR
Esme Business Loan
£10,000 to £250,000 *From £25,500 for Sole Traders
1 year to 5 years
9.51%
Representative example: Borrow £50,000 over 24 months at a rate of 8.40% p.a. (fixed). Representative APR 8.73% and total payable £54,491.93 in monthly repayments of £2,270.5.
Fleximize Unsecured Business Loan
£5,000 to £250,000
1 month to 2 years
-
Representative example for loans of £25,000 or below: Borrow £12,500 over 15 months with an interest rate of 36.4% p.a. (fixed). Representative APR 43.1% and total payable £15,740.33 in monthly repayments of £1,049.36.
MarketFinance Small Business Loan
£5,000 to £250,000
6 months to 3 years
-
Nucleus Cash Flow Finance
£25,000 to £150,000
3 months to 5 years
-
Spotcap Short Term Loan
£50,000 to £350,000
1 month to 24 months
22.8%
Representative example: Borrow £100,000 over 12 months with an average monthly interest rate of 1.4% and a 2.0% arrangement fee. Representative APR 22.8% and total payable £109,332 in monthly repayments of £9,111.
Capital Box Loan
£2,000 to £50,000
18 months
-
Growth Street GrowthLine
£25,000 to £1,000,000
From 1 day and open-ended
-
Capital on Tap Business Loan
£1,000 to £50,000
1 month to 12 months
39.9%
Representative example: When you spend £1,200 at a purchase rate of 39.9% (variable) p.a., your representative rate is 39.9% APR (variable).
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