Business Loans FAQ

Do I have to get a business loan?

It depends on your expectations of the business. Business loans do not give the lender equity in your business. If you are successful, you only have to pay back the principal plus interest, rather than a share of the profits as long as the business exists. A loan also cuts red tape and tasks, such as holding shareholders' meetings and votes, and complying with the securities regulations of the Securities and Exchange Commission.

Where can I get a loan?

Commercial banks are the main source of business loans, but account for only 65% of small business loans, according to the Small Business Administration of the United States. Credit cards are a growing source of finance for small businesses. You can also ask friends and family for cheap loans and a more informal application process.

What do I need to apply?

The loan requirements depend on the person from whom you are applying for a loan. For a commercial lender, you need a business plan that establishes a path to sufficient profitability to at least service the loan. Unless you have been operating a business for several years, you will likely have to rely on your personal credit worthiness, such as good credit, collateral and experience in your field, to obtain the loan.

Are loans considered taxable income?

No, in fact, according to the Internal Revenue Service, you can deduct interest on a business loan as a business expense, provided you have a legal responsibility for the debt. You can even cancel bad debts owed to your business, for example from a customer who doesn't reimburse you for a service or product.

Disadvantages?

If you want to form a limited liability company, consider that signing a loan makes you personally liable for commercial debts, according to Nolo. Do not take out a loan because your business is in trouble, but rather to pay the expenses necessary for the growth of the business or the initial capital.