Subscribe to Entrepreneur for $5

Can I pay for an equity loan through my business?

Opinions expressed by Entrepreneur contributors are their own.
I am buying a business with an equity loan. The purchase is for the entire business, including the stock. If I write a check to the present owner and he transfers the stock, will I be able to pay the equity loan through the business, as a business expense? I need to repay the equity loan from the business not my income.
Be careful with this and work it out with your accountant. Mixing business finances with personal ones can make a mess of both, muddy up your business analysis and your personal finances.

On the other hand, most small business owners have to sign personal guarantees for business loans, and that pulls the house equity into the equation whether we like it or not. My wife and I have signed guarantees dozens of times through the years, essentially using our house equity to enable our business to borrow money. Those loans, however, started and ended as business loans: The money went straight to the business, and the business paid them back. Our house was in the background, in the early days -- there were even liens on the house, but for business loans.

If you already took the money from a personal equity loan into your personal bank account, and you have the business repay the loan or pay the interest, check with your accountant or lawyer because that sounds to me -- and, reader beware here, I'm not a CPA and not an attorney, so this is just a guess, not professional advice -- like the amounts have to be reported to the IRS as the business paying you money, the same as salary.


Entrepreneur Editors' Picks