PDA

View Full Version : Loans



Ray Ramelli
12-06-2005, 07:47 PM
I am doing a home show in March and want to do it right: marketing materials, great displays, etc. I also want to make some equipment purchases as well.

Since cash flow is always a concern I am considering taking out a loan to pay for these items.

Is the interest on a business loan a deductable item?

Also, aside from taking out a loan is a credit line a better way to go?

Are there any tax advantages/disadvantages either way?

What have you guys done to help fund the expansion of your business?

Allan Edwards
12-07-2005, 07:27 AM
Ray:

Yes, generally loan interest for business purposes is deductible. I assume you are a sole proprietor or incorporated and have "S" Corp status. As far as the business sense of borrowing money to grow your business, I would be careful not to borrow too much. Generally, I think its best to grow your working captial thru profits you make and are in excess of what you need for personal, living expenses.

Mike Moore
12-07-2005, 10:55 AM
I'm with Allen on this one.
The best way to "fund the expansion of your business" is to use the proceeds from sales. If you need more cash, sell more.

In the long run it's increased sales that will be paying the loan back, with interest, anyway.

If I need a tool to do a job I often write it into the contract price, see if that works for you.

Mike Moore
www.AskMikeMoore.com

Ray Ramelli
12-07-2005, 03:56 PM
My company is an LLC.

I would really like to grow through sales, but it's the old catch 22. More advertising usually leads to more sales, but takes dollars.

What has happened is that I have drained my cushion getting the cabinet business started and now need more sales to get the cushion back.

Manny Davis
12-07-2005, 08:39 PM
If I need a tool to do a job I often write it into the contract price, see if that works for you.

All that does is make the price higher than it should be. Why not write your monthly grocery bill into the price too?

Wes
12-09-2005, 09:46 AM
Although I agree to a point about growing your business from your profits, the part I disagree with is not borrowing money to help. We all need cashflow in our business or we come to a standstill. Now with that said you must be very careful about how you borrow. Don't take more than you need, you can always go back for more if you need too. My personal philosophy is why spend yours when you can spend the banks. This only works if you have a bank that will work with you. It will also only work if you are very disiplined and don't take more than you are able to pay back in a very short period of time. I borrow money all the time and pay it back within a year(often in a month or so), it may sound ridiculous but it allows me to use my capital in areas that can be more useful.

As for a loan or LOC, it depends on whether you think you will need to keep dipping into the banks pockets every couple of weeks or so. If you know you need $xxx then just take out a loan. All of your interest is deductible as a business expense if it is interest on money borrowed by the business.

Ray Ramelli
12-09-2005, 11:14 AM
Cashflow is a problem area right now and I want to make sure I can outfit my booth properly for the home show so it looks like a small loan.

Thanks guys,