• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Facebook
  • Instagram
  • LinkedIn
  • Twitter
  • YouTube
Big Ideas for Small Business logo

Barbara Weltman

Big Ideas for Small Business, Inc.

Whitepaper download

Subscribe and download our eBook, "150+ Tax Deductions for Small Business A to Z."

This field is hidden when viewing the form
Get the:

  • Home
  • About Us
  • Big Ideas For Your Business
    • Idea Of The Day ®
    • SMB Legal
    • SMB Taxes
    • SMB Financial
    • Small Business
    • Newsletter Archive
  • Services
  • Books
  • Blog
  • Multimedia
    • Videos
    • Radio Shows/Podcasts
  • Be a Guest Blogger

Borrowing for Your Business: Financial and Tax Implications

September 1, 2020 / By Barbara Weltman

As many small businesses struggle to survive the pandemic, loans have become a lifeline. If you need money and are able to borrow it, be sure to understand what it means from a tax and financial perspective. Here are some key issues to consider.Borrowing for Your Business - Financial and Tax Implications

Financial issues

When you take a loan, it requires repayment (unless there is forgiveness, which is discussed later). Servicing a loan means repaying the principal—the amount you borrowed—as well as interest.

It’s essential that debt servicing is factored into your budget so you have enough cash on hand each month to pay what’s owed. Falling behind in loan repayments can produce dire consequences:

  • Hurt your credit rating
  • Result in the loan being called, which means immediate repayment of all that’s owed

A loan is a liability reported on your balance sheet. Even if you aren’t delinquent in loan repayment, having an outstanding loan can reduce your credit rating. This can prevent you from additional borrowing or cost you more if you do (e.g., a higher interest rate on a car loan).

Tax issues

You aren’t taxed when you obtain a loan; the proceeds are tax free. On the flip side, when you repay principal, it’s deductible.

Interest on the loan usually is deductible, unless a limitation applies. Small businesses — those meeting a gross receipts test — are not subject to this limit. (For 2020, the gross receipts test means having average annual gross receipts in the 3 prior years not exceeding $26 million.) But those that don’t meet this test are subject to a restriction on the interest expense deduction.

If a loan is forgiven, in whole or in part, the amount of the loan that’s canceled generally is treated as taxable income. However, loans under the Paycheck Protection Program (PPP) can be forgiven and, by law, the amount forgiven is tax free. This loan forgiveness isn’t automatic; you have to apply for it and meet certain tests to qualify. The tests have been changed since the program launched and some experts think they could continue to be changed. As a result, they are suggesting that borrowers wait to apply for forgiveness.

If there is forbearance on a loan—the lender refrains from requiring repayment as scheduled—you continue to owe the money. Make sure you understand whether interest continues to accrue at this time; it likely does. You can’t deduct interest until it’s paid.

Final thought

While Polonius in Shakespeare’s Hamlet cautioned “neither a borrower nor lender be,” he didn’t live in the time of the pandemic when many small businesses are barely hanging on.

Borrowing can bring in the infusion of cash needed to get through hard times. But be sure to understand the ramifications of taking out a loan. Talk with your CPA or other financial or tax advisor to get a better handle on whether to borrow (assuming you can), how much you need, and what it means to your business.

Tags a tax and financial perspective borrowing for your business business loan small business loan survive the pandemic

Primary Sidebar

Categories

  • General Business (498)
  • Guest Blog (109)
  • Homepage (23)
  • Small Business (992)
  • SMB Financial (323)
  • SMB Legal (66)
  • SMB Taxes (325)

Barbara’s Recent Posts

  • Preview of Tax Changes this Year: Actions to Take Now June 5, 2025
  • Becoming Penniless: What Does this Mean for Your Business? June 3, 2025
  • Scale Your Business by Stepping Up IP Protection May 29, 2025
  • Disasters Happen: It’s Important to Be Prepared Now May 27, 2025
  • How Work Order Software Transforms Small Business Operations May 26, 2025
  • The Numbers Are Up for Sole Proprietorships May 22, 2025
  • New Business or Project Crowdfunding: What To Know May 20, 2025
  • Old-School Estimating vs. Smart Solutions: What’s Really Holding You Back? May 19, 2025
  • Employees Getting Called to Public Service: What to Know May 15, 2025
  • Not Too Late to Prep for Summer Now May 13, 2025
  • How Will the Next Generation of Learners Affect the Workplace May 12, 2025
  • Moms Know Best: Lessons for Entrepreneurs May 8, 2025
Awarded Top 100 Small Business Blog medal (link will open in a new window or tab)
Marquis Who's Who 2023 Badge
Top Small Business Blogs (Link will open in a new window or tab.)
8 Financial blogs small business Owners Need to Read. Invoice home.  (link will open in a new window or tab)
Best Small Business Blog, Expertido.org
Top 50 Small Business Blogs 2018
Best Small Business Blogs
BizHumm Top 100 Business Blog Award to Barbara Weltman
FitsSmallBusiness.com: Award for Best Small Business Blog 2017 (link will open in a new window or tab)
FitsSmallBusiness.com: Award for Best Small Business Blog 2016 (link will open in a new window or tab)

Footer

Big Ideas for Small Business logo

Small business ideas, business tax news and small business consulting from Barbara Weltman to provide business owners with the information they need to succeed. Visit our small business blog, Idea of The Day®, small business books and articles on small business taxes, small business finance and small business legal advice.

Contact Us

[email protected]

(772) 492-9593

gacor maxwin situs slot thailand terpercaya situs slot gacor situs gacor akun pro thailand slot bandar togel terpercaya

Latest Tweets

bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
June 5

ChatGPT introduces meeting recording and connectors for Google Drive, Box, and more | TechCrunch https://tcrn.ch/43ZMoMl #chatGPT #smallbusiness #techupdates

Reply on Twitter 1930746536327049480 Retweet on Twitter 1930746536327049480 Like on Twitter 1930746536327049480 Twitter 1930746536327049480
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
June 5

Demographics Matter Most https://bit.ly/44OEUg7 #business #demographics

Reply on Twitter 1930701301039391157 Retweet on Twitter 1930701301039391157 Like on Twitter 1930701301039391157 Twitter 1930701301039391157
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
June 5

Need some expert help with your website? Try website development services by freelance web developers | Fiverr https://bit.ly/3ZNRzwq #projectwork #webdevelopers #freelance

Reply on Twitter 1930689859238179212 Retweet on Twitter 1930689859238179212 Like on Twitter 1930689859238179212 Twitter 1930689859238179212
Load More

Copyright © 2008–2025 Big Ideas for Small Business, Inc  |  Designed by Hudson Fusion

  • Privacy Policy
  • Sitemap