Everything you need to know about business loans and the taxes associated with them


Many of you dream of starting a business, and so to get started, many opt for a business loan.

Even those who are already running a business may need a business loan to grow and expand. There are many options from financial institutions that offer business loans, like a bank or even an NBFC. There is also the availability of a private money lender, although this is not a recommended option for a business loan.

First, we must identify the need for this Commercial loan. Once this is properly settled, you can go ahead and decide on a suitable business loan. However, before doing so, there are a lot of things that one should be aware of, and hence let’s take a look at the details related to a business loan.


What are the different types of business loans that you can choose from?

Business loans are mainly of 2 types:

  • Secured Business Loan: As the name suggests, since it is a secured form to qualify for this loan, you need to provide some kind of collateral.

  • Unsecured Business Loan: This type of business loan does not require you to provide any form of collateral, although the tradeoff is higher. commercial loan interest rates.

Two factors that affect these two types of business roles are:

  • The risk involved: Secured loans give a feeling of security; However, if you do not reimburse you may lose the warranty.

  • Interest rates are also affected: if you can provide any kind of collateral, the institution is ready to lend higher amounts with lower interest rates. So in unsecured loans you will get only lower amounts and that too at high rate of interest for business loans.

What are the components of a business loan? What exactly should we be looking at?

Like any other type of loan, a business loan is also made up of 2 elements:

  • Principal: This is the lender’s money, whether bank or NBFC, in the form of a loan.

  • Interest: Over time, day by day, the principal accumulates interest which you have to pay from time to time based on your payment schedule.

Are there any provisions in commercial loans in the form of tax benefits?

Yes most definitely when you apply for a business loan you can also get various fiscal advantages in its place. When repaying the loan, several provisions help to reduce taxes. The two main types of tax benefits you get from a business loan are:

  • Tax Deductible Interest: As discussed, the business loan consists of principal and interest, where the interest is beneficial by reducing taxes. You can simply deduct this amount from the gross income and reduce the tax you have to pay in the end.

  • Tax deductible expenses: All kinds of expenses that you will incur in operating the business can be easily deducted from gross income and save tax. Therefore, a combination of the two can lead to better tax reduction alternatives.

What are some of the unique scenarios that negate the tax benefits of any business loan?

The interest you pay can be easily deducted from gross income and will reduce the tax you pay, but there are exceptions. There are specific scenarios where the business loan you acquire will not be eligible for tax benefits. Let’s look at a few situations where you won’t get any tax benefit from your business loan:

  • Loan refinancing: Suppose you take a loan from one lender and take another loan from the same lender to pay it off, the sooner you can get the tax benefits of the first loan. You will benefit from tax advantages on the next loan that you take out to repay the first.

  • Buy a business: suppose you also want to buy a business here Tax deductions apply to carrying on a business, otherwise there will be no tax benefit on business loans.

  • Repayment as an EMI: If you choose to repay said business loan as an EMI, all tax benefits are waived immediately.

Some other uses and points of business loans:

  • Custom options: Business loans are quite flexible and customizable according to the person requesting approval.

  • The Plethora of Payment Options: There is a lot of flexibility offered by the lenders when it comes to business loans and hence one can get repayments on these loans fairly quickly.

  • Startups gain a lot from this: If you are planning to start something new, the business loans granted to you will also come with plenty of tax saving options.

So there you have a thorough study of several aspects related to a business loan. Now set your priorities and get the advantageous business loan today!


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