Borrowing Money From Your Business

Sometimes when you run a business, you make many sacrifices on your own finances to keep your company’s finances healthy. Eventually, when your business is running smoothly you may want the roles to turn upside down so your business can help your finances and bring some easy to your personal financial life. Unfortunately, legal regulations are complex and strict when it comes to borrowing from your own business. Yet, it is possible to obtain a personal loan for you by means of your business. Let us analyze how:

Borrowing From Your Own Company

As opposed to regular personal loans, when you borrow from your own company you will not have to go through complex application processes. Instead, you will only have to take some financial and accounting precautions to make sure that the whole process remains legal according to IRS regulations. Furthermore, your credit score will not be an issue since there will be no credit verification processes either and there is no need for you to put collateral in order to secure the loan. This of course implies that you will be able to obtain the funds that you need without hassles or delays and that you will not be risking your personal assets in the process.

However, though these loans require no collateral, offering a property as collateral will contribute to eliminate suspicions from the IRS if your are eventually audited. Other things that the IRS will check if you happen to obtain a loan from your company are: a cap or maximum amount of money lent, the recent history of the company’s dividend distribution, the company and your financial and tax payment history, etc. If you do not meet the requirements stated above, the IRS may tax the loan as a dividend distribution instead of a loan. Thus, you need to make sure that the terms of the loans you obtain, though advantageous for you, do not result too onerous for the company.

Benefits of Borrowing From Your Own Company

What are the benefits you can obtain by borrowing from your own company? For starters, since there are no credit checks involved, it does not matter how low your credit score is, you can still obtain the money you need. Even if you need money to purchase a home or other property you can get any loan amount without credit checks as long as the company can afford it. Furthermore the terms of the loan will adjust to your budget easily because you alone (or with the aid your company’s partners) will set them. It is even possible to set the interest rate to zero if the loan amount is below certain amounts. But even if you need higher loan amounts you can set the interest rate low enough to make it not only affordable but also advantageous for both parties.

The interest rate is not the only variable you will be able to set on advantageous ranges. For instance, you can set a longer repayment schedule than what a common bank would normally grant, offer a higher amount than the one a financial company would provide you with, etc. As long as the terms of the loan are reasonable and the IRS can not conclude that the owner is taking advantage of the company’s assets in its detriment, the contract can be considered a loan and you can take advantage of the tax benefits it implies. But remember that if you push your luck too much, the loan contract can be considered dividend distribution and taxed accordingly which can turn out to be too expensive. Furthermore, remember that the interests paid to the company for the money owed, are considered revenue and consequently taxed too.