This page from Fieldhaven Business Funding in Valparaiso, Indiana answers owners' common funding questions: whether an LLC can get a business loan, paying a loan off early, using a business loan to pay yourself, whether equipment financing is a loan, the records partners can ask for, and whether equipment loans are tax deductible.
Can an LLC Get a Business Loan in Its Own Name?
Yes. A limited liability company can borrow in its own name, and the agreement is between the LLC and the funder. In a small LLC, though, partners read the members as well as the company: their credit, their share of ownership and, in many offers, a personal guarantee from members above a set ownership share. The LLC's registration should be current with the Indiana Secretary of State, and the bank account and tax return should carry the same legal name as the request.
The Indiana Secretary of State Business Division runs the business search where an entity's status can be checked.
Can You Pay Off a Business Loan Early? Prepayment Clauses Explained
It depends on the agreement. Some loans charge interest only for the time the balance is outstanding, so paying early saves money. Others charge a prepayment fee, or fix the total cost when the loan is signed so early payment saves nothing. Merchant cash advances may or may not discount the remaining total. Find the prepayment clause before signing and ask the partner to explain it.
Can I Use a Business Loan to Pay Myself a Salary or an Owner's Draw?
Funding obtained for a business purpose is meant for the business. An owner's salary paid through payroll can be a business expense in some structures, and partners may allow it as part of working capital; an owner's draw from profits is another matter. The agreement can restrict how proceeds are used, so ask the partner before planning on it, and ask a tax professional how it would be treated.
Is Equipment Financing a Loan, a Lease or Sometimes Both?
Either. An equipment loan is a loan secured by the machine; the business owns the machine and the funder holds a lien. With an equipment lease, title stays with the lessor and the business rents the machine. Some leases are written so the business buys the machine for a nominal sum at the end, which makes them behave like loans. The equipment financing page compares the two.
Business Loan Required Documents List, Kept in One Folder
- Recent business bank statements, every page.
- Filed business returns for whichever years the partner asks about.
- This year's profit and loss and a balance sheet as of a recent date.
- Owner IDs, and the entity's formation documents.
- Quotes, invoices or a purchase agreement for the money's use.
- A schedule of existing debts and leases.
The step-by-step process page shows which records go with which product.
Are Equipment Loans Tax Deductible for a Small Business?
Interest on a business loan is generally treated as a business expense, and equipment can be depreciated, sometimes faster under special rules. Lease payments can be treated differently from loan payments. The rules depend on the business's structure and situation and change over time, so the tax professional who prepares the return is the person to ask.
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