Lending Money to Your Own Corporation

Yes, you can lend money to your own corporation, and it is one of the most common ways owners inject cash into a business without giving up equity or triggering payroll and dividend taxes. The transaction is treated as a shareholder loan: your corporation books a liability (a debt it owes you), and you book a receivable (money the company owes back to you). Done correctly, the money moves in tax-free, the repayments come back to you tax-free, and the interest the company pays you is deductible to the corporation. The catch is that "correctly" is a real standard. The IRS and, if it ever comes to it, a bankruptcy court will only respect a shareholder loan when it looks like a loan a stranger would have made: a written note, a stated interest rate at or above the applicable federal rate, a repayment schedule, and a track record of the company actually paying. Skip the paperwork and the same money gets recharacterized as a capital contribution (equity you cannot pull back out freely) or, worse, as a disguised dividend that gets taxed. This guide walks through the mechanics, the documentation, the tax treatment, and the decision most owners face at the end of it: whether to lend your own money at all, or whether outside business financing is the better use of your personal cash.

What a shareholder loan is (and what it is not)

A shareholder loan is a genuine debt between you and your corporation, running in either direction. When you put money in, the company owes you; when the company advances money to you, you owe it. This page is about the first direction: the owner acting as lender to their own C-corp or S-corp.

It is not the same as a capital contribution. A contribution buys or increases your equity stake and permanently raises your basis in the company; you get it back only through distributions, a sale, or liquidation. A loan sits on the books as a liability with a maturity date and a repayment plan, and you can be repaid ahead of shareholders getting distributions. That distinction is the entire point. Owners choose the loan structure precisely because it is retrievable and because interest is deductible to the business, whereas dividends are not.

It is also not a way to move money around casually. The moment the transfers look informal, undocumented, or repaid only when convenient, you invite the IRS to say there was never a real loan at all. The label you write on the check does not control the outcome; the substance does.

How to document it so the IRS respects the loan

Recharacterization risk is the whole game, and it is decided on documentation. Courts weigh a familiar set of factors when deciding whether an owner advance is debt or equity. Hit these and you are on solid ground:

• A written promissory note. Names of borrower (the corporation) and lender (you), principal amount, interest rate, maturity date, and repayment terms. Signed and dated.
• A stated interest rate at or above the Applicable Federal Rate (AFR). The IRS publishes AFRs monthly. Charge below it and the difference can be imputed as income or a gift. There is a de minimis exception for loans under $10,000, but above that you charge real interest.
• A fixed repayment schedule and then actual, on-time repayments that match it. A note nobody ever pays is the single clearest sign of equity.
• Board authorization. Corporate minutes or a written consent approving the loan and its terms, showing the corporation treated it as an arm's-length transaction.
• Consistent bookkeeping. The loan appears as a liability on the balance sheet (often "Due to shareholder"), the interest expense is recorded, and you report the interest received on your personal return.

The interest is the part owners most often skip and most often regret. If the corporation pays you interest, it deducts that interest as a business expense, and you report it as taxable interest income on your Schedule B. That is real income to you, so structure the rate deliberately rather than defaulting to zero.

Tax treatment: what moves tax-free and what does not

Here is the clean version of the tax picture for a properly documented loan:

• The principal going in is not taxable to the corporation. Loan proceeds are never income. The company simply owes you.
• Repayment of principal to you is not taxable. You are getting your own money back; there is no gain until repayment exceeds what you loaned.
• Interest is where tax lives. Deductible to the corporation, ordinary income to you. This is the trade-off that makes a loan cleaner than a dividend (which is not deductible to a C-corp) but not entirely tax-free.
• S-corp basis matters. For S-corp owners, a direct shareholder loan creates debt basis, which can let you deduct losses that exceed your stock basis. Loans routed through an entity you own rather than made personally generally do not create that basis, so make the loan yourself, directly.

If the loan is later forgiven, the tax story changes hard: forgiven debt is generally cancellation-of-debt income to the corporation, and it can be treated as a distribution or contribution depending on the facts. Forgiveness is not a casual move; treat it as a taxable event and get it reviewed.

None of this is tax advice for your specific return. AFRs, basis rules, and S- versus C-corp treatment interact with your whole picture, so confirm the numbers with your CPA before you wire anything.

A realistic example of the mechanics

The figures below are illustrative only, to show how the entries and cash flow behave. They are not a quote, a rate, or a prediction for any real business.

Notice what the example deliberately does not do: it does not multiply a factor rate against a lump sum to declare a total payback number. Owner loans are about the monthly cash the business can carry against its deposits, not a single headline figure. The same discipline applies when you compare this to outside funding.

Decision framework: when to lend your own money vs. raise outside capital

Lending to your own corporation is the right move in a narrow set of situations and the wrong one in others. Use this as an underwriter would.

Lending your own money works best when:

• The need is short, defined, and self-liquidating, for example bridging a receivable you can see landing.
• You have personal cash sitting idle that you can afford to have tied up, and losing access to it would not create personal stress.
• You want interest income to yourself and a deduction to the company rather than paying an outside lender.
• You can and will do the paperwork, charge interest, and have the company actually repay on schedule.

Avoid lending your own money when:

• The cash you would lend is your personal safety net or your family's reserve. Commingling personal survival money with business risk is how one bad month becomes two problems.
• The business needs recurring working capital, not a one-time bridge. Repeatedly feeding the company from your own pocket masks a cash-flow problem instead of solving it.
• You would have to liquidate investments, take a penalty, or borrow personally to fund the loan. Then you are just moving debt onto your own name.
• Preserving your personal liquidity matters more than saving on interest, which for most operators it does.

That last point is where outside financing earns its place. If the business generates steady revenue, a revenue-based advance or MCA-style marketplace product can cover the same working-capital need while your personal cash stays your personal cash.

When revenue-based funding beats dipping into your own pocket

The strongest reason to fund the company from outside is preservation of personal liquidity. Your own cash is the most flexible asset you have; once it is inside the corporation as a loan, it is only as retrievable as the company's cash flow allows. If the business hits a rough stretch, you cannot force it to repay you ahead of its other obligations without creating problems of its own.

Revenue-based and MCA-marketplace funding is built for exactly the working-capital gap owners try to plug with shareholder loans. Approval leans on your business bank deposits and revenue rather than your personal credit score, so it fits owners whose numbers are strong even when their FICO is not. In practical terms, that means:

• Approval driven by bank-statement deposits and revenue trends, not primarily credit.
• Personal credit in the 500s can still qualify.
• Funding amounts commonly starting around $10,000.
• Turnaround often in roughly 24 to 48 hours once statements are in.
• Repayment tied to your revenue rhythm rather than a rigid amortized personal loan.

No responsible funder guarantees approval, and you should be skeptical of anyone who does. The honest framing is a trade: you pay for capital so you do not have to strip your own reserves. For a business with real deposits, keeping your personal cash intact is usually worth more than the interest you would have earned lending to yourself. Compare the options side by side on our business financing pillar before you decide which pocket the money comes from.

Common mistakes that get owner loans recharacterized

• No note, or a note nobody signs. A verbal understanding between you and your own company is the weakest possible position.
• Zero interest above the de minimis threshold. Below-AFR or no-interest loans over $10,000 invite imputed-income adjustments.
• Repaying only when convenient. Irregular or missed payments are the clearest evidence the "loan" was really equity.
• Ballooning balances that only ever grow. A shareholder account that goes up every year and never comes down reads as capital, not debt.
• Commingling. Paying personal expenses from the business or business expenses personally, then calling the net a loan, destroys the arm's-length story.
• Forgiving the loan casually. Forgiveness is a taxable event, not an eraser. Handle it deliberately with your CPA.

Every one of these is avoidable with a note, a rate, a schedule, and consistent books. The paperwork is cheap; the recharacterization is not.