Setting up or buying a business can be both an exciting and frantic time.
In the hustle and bustle of getting underway, it is important not to overlook the need to set up any business loans properly.
Many people set up a business after establishing themselves first – they have a home and have invested cash and savings into that home to get to the stage where they can invest some cash in a business.
The problem is that home loans are not generally tax deductible. That means the interest paid on the home loan is not treated as a tax deductible expense.
The best approach is to invest any spare cash into reducing your home loan and borrow as much as possible against the business.
You are still borrowing the same amount from the bank, but because the purpose of the loan is to establish a business the interest is tax deductible.
Repaying your business loan last will save you money not only in the long run, but also when you are first trying to get cashflow through the business in the early years.
In reality the security offered to a bank is probably still the same – i.e. your home – but the purpose of the loan is different and that is what the Inland Revenue takes into account.
Seeking sound legal advice when you embark on a new business venture is always advisable, as seemingly small details like this can make all the difference.
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