Are Business Loans Tax-Deductible? + FAQs

The short answer is yes – but only the interest on a business loan is deductible as a business expense (with conditions), not the loan principal you repay.

 

According to a 2023 Federal Reserve small business survey, nearly 72% of small businesses carry some form of debt, yet many owners aren’t sure which loan expenses are deductible – potentially leaving thousands in tax savings untapped and risking IRS issues due to misfiling, lets make sure that doesn’t happen for you.

In this in-depth guide, we’ll break down how it all works and show you ways to maximize deductions while avoiding pitfalls:

• 💡 What you can (and can’t) write off: Learn exactly which parts of a business loan reduce your taxable income – and which parts don’t.

• 🚩 Mistakes to avoid: Discover common tax traps (like deducting the wrong thing) that trigger IRS red flags, and how to steer clear of them.

• 📈 Real-life examples: See step-by-step examples of loan interest deductions in action and how much money they can save you come tax time.

• ⚖️ Different scenarios compared: We’ll contrast three loan deduction scenarios – from a simple startup loan to a large corporate loan – and show how the tax write-offs change in each case.

• 🗝️ Insider insights & loopholes: Get definitions of key tax terms (IRS, Schedule C, EIN, etc.), learn about court rulings that reveal surprising loopholes, and see the pros and cons of using loan interest deductions.

Yes – But There’s a Catch: Business Loan Tax Deduction Basics

Are business loans tax deductible? Yes – but only certain parts of a loan are deductible. In general, the interest you pay on a business loan is considered a tax-deductible business expense. The loan principal (the amount you borrowed) is not deductible, because paying back principal isn’t an expense – it’s just returning money you borrowed (and those loan proceeds weren’t counted as taxable income when you received them).

How the deduction works: If your business took out a loan and you’re paying interest on it, that interest can typically be subtracted from your business income on your tax return. This reduces your taxable profit, which means a lower tax bill. For example, if your company paid $5,000 in interest on a business loan this year, it could knock $5,000 off your taxable income. If you’re in a 24% tax bracket, that saves you about $1,200 in federal taxes. The deduction essentially offsets part of the cost of borrowing.

The catch: The interest is deductible only if the loan was for legitimate business purposes. You must use the borrowed money for business expenses (equipment, inventory, working capital, etc.). If you spend any of it on personal or non-business items, the IRS won’t let you deduct that portion of the interest. The tax code’s “tracing rules” require you to track how loan funds are used – interest is allocated to the use of the money. In short, business loan interest is deductible only to the extent the loan was used for business expenses. (We’ll discuss how to handle mixed-use loans in the examples below.)

Federal law at a glance: Under U.S. federal tax law, interest on business debt is generally considered an “ordinary and necessary” business expense, which makes it deductible. This applies across all types of business entities – whether you’re a sole proprietor deducting interest on Schedule C, an S corporation or partnership passing through the expense to owners, or a C corporation deducting interest on your corporate tax return.

The IRS fully expects businesses to write off their interest costs, just as they would rent or salaries, so long as the interest meets the criteria (business-related, properly documented, and within any applicable limits).

Important: There are some limitations and special rules to be aware of. Thanks to the 2017 Tax Cuts and Jobs Act, very large businesses (those with over a certain revenue threshold) face a cap on interest deductions (more on that in a later section). But small businesses are generally exempt from those limits, meaning they can usually deduct 100% of their business loan interest. We’ll explore these rules – and a few loopholes – in detail, but the key point is:

The interest on a bona fide business loan is tax-deductible in most cases, while the loan principal and any unrelated personal use are not.

🚫 Costly Mistakes to Avoid When Deducting Loan Expenses

Even though deducting loan interest is fairly straightforward, business owners often slip up and make mistakes that can lead to lost deductions or even IRS penalties. Here are some common pitfalls to avoid:

• Don’t deduct the loan principal: It’s worth repeating – you cannot deduct the money you repay on the loan itself. For example, if you took a $50,000 loan, repaying $10,000 of that principal this year is not a business expense. Only the interest portion (say $2,000 of interest) is deductible. Deducting principal payments is a big no-no and will be disallowed in an audit.

• Avoid mixing personal expenses: Never deduct interest on funds used for personal purposes. If you used part of a business loan to pay for something personal (like a family vacation or a personal car), you must allocate and exclude that portion of interest from your business expenses. Claiming interest on personal use is not allowed – the IRS considers that personal interest, which is generally not deductible.

• Don’t deduct interest if the funds sit idle: This one surprises many people. If you haven’t actually used the loan money for the business yet, the interest isn’t deductible. Say you took a loan and the cash is still just sitting in your business bank account – the IRS views that interest as related to an investment (idle cash), not a business expense, until you deploy the funds. Only after you spend the money on business operations does the interest become a deductible business expense.

• Formalize loans from friends/family: Borrowing from a friend or family member? Be careful. The IRS is skeptical of informal loans. If you’re paying “interest” to a family member, make sure there’s a signed loan agreement, a set interest rate, and a clear repayment schedule.

  • Otherwise, the IRS might treat the arrangement as a gift or capital contribution rather than a loan, meaning no deductible interest. (In one tax court case, a business owner’s “loan” from a relative was denied interest deductions because it wasn’t a real, enforceable debt.) Always formalize insider loans in writing to preserve your deduction.

• Don’t deduct interest you didn’t pay: You can only deduct interest that your business has actually paid or accrued (depending on your accounting method). For example, if you’re a cash-basis filer (common for small businesses), you deduct interest in the year you paid it.

  • You cannot pre-deduct future interest or claim a deduction for interest that was waived or forgiven. Also, if you personally guarantee a business loan, you can’t deduct those interest payments on your personal return unless the business defaults and you end up paying off the loan yourself (at which point it essentially becomes your business loss).

• Watch out for upfront loan fees: If you paid points or origination fees to get a business loan, those are essentially prepaid interest. Don’t deduct the full amount in the year of the loan. Instead, you generally must amortize those fees over the life of the loan (deduct a portion each year). For instance, if you paid a $2,000 loan origination fee on a five-year loan, you’d typically deduct ~$400 per year over 5 years. Taking the whole $2,000 at once is a mistake to avoid (unless it’s a very short-term loan that fully repaid within the year).

By sidestepping these mistakes, you’ll maximize your legitimate deductions without raising red flags. Good recordkeeping and a clear separation of business vs. personal use are your best defense. Next, let’s look at some concrete examples to drive these points home.

Real Examples: How Loan Deductions Work in Practice

To make this more tangible, here are a few detailed examples showing how business loan tax deductions play out in real scenarios:

Example 1: Deducing interest on a standard business loan. Imagine you took out a $50,000 small business loan from your bank to purchase new equipment and fund day-to-day operations. The annual interest rate is 8%. In the first year, you paid back $10,000 of the loan principal and, say, $4,000 in interest.

Come tax time, your business can deduct that $4,000 interest as an expense on your tax return (because the loan was entirely used for business purposes). The $10,000 principal repayment isn’t deductible – but remember, the original $50,000 you received wasn’t counted as taxable income either.

If you’re a sole proprietor, that $4,000 interest expense would be listed on Schedule C and directly reduce your business profit. If you run a corporation, the $4,000 would appear on your corporate income statement and Form 1120, reducing taxable income. Assuming a 25% combined tax rate, that interest deduction saves roughly $1,000 in taxes. In effect, the government “subsidizes” part of your borrowing cost.

Example 2: Loan used partly for personal needs. Now let’s say you obtained a $20,000 loan for your business, but in a pinch you used 25% of it for personal expenses (perhaps covering some family bills). During the year, you paid $1,800 in interest on this loan. Since only 75% of the loan went to business purposes, only 75% of that interest is deductible as a business expense.

That means you can write off $1,350 (which is 75% of $1,800) on your tax return. The remaining $450 of interest is considered personal interest – which is not tax-deductible under federal law.

You’d need to document how the funds were used (e.g. maintain records showing $15,000 went to business purchases and $5,000 was withdrawn for personal use) in case of an audit. This example highlights how properly allocating your interest matters: use the full loan for business, and you get the full deduction; mix in personal use, and you lose part of the write-off.

Example 3: Hitting the interest deduction limit. Consider a larger company that had a big expansion loan. Suppose in 2025, MegaCo (a C-corp) paid $100,000 in interest on its debts, but its taxable income (before interest) was only $200,000. Under the tax law’s Section 163(j) limitation, certain large businesses can only deduct interest up to 30% of “adjusted taxable income.”

If MegaCo exceeds the gross receipts threshold (around $29 million average revenue for the prior three years, meaning it’s not a “small” business by IRS definition), it would be subject to this limit. 30% of $200,000 is $60,000 – so MegaCo could deduct $60,000 of its interest this year. The remaining $40,000 of interest expense is disallowed for now – but not lost forever. MegaCo can carry forward that $40,000 to deduct in a future year (when its income is higher or debt lower) under the rules.

This example shows that very debt-heavy, larger companies might not get to deduct every dollar of interest right away. Most true small businesses won’t hit this limit (and are explicitly exempt if under the revenue threshold), but it’s good to know as your business grows. We’ll compare scenarios with and without this limitation in the next section.

These examples illustrate the core principle: interest is generally deductible, but only in proportion to business use and within legal limits. By carefully tracking your loan usage and interest payments, you can confidently claim the deductions you’re entitled to.

📊 Evidence and Data: The Impact of Loan Deductions

Business loan deductions aren’t just a theoretical perk – they have a significant impact in the real world for many companies. Let’s put this into perspective with some data and context:

• Most small businesses have loans: According to Federal Reserve surveys, roughly 72% of small businesses have outstanding debt. In fact, about 39% of firms had over $100,000 in debt in recent years. This means the majority of businesses are paying interest to lenders – and therefore could benefit from interest write-offs. If you’re one of them, you’re certainly not alone; taking a loan to grow your business is common, and the tax deduction helps ease the cost.

• Aggregate tax savings are huge: Interest expense is one of the larger categories of business deductions nationally. The IRS doesn’t publish a total dollar amount just for “small business loan interest,” but consider this: if a million small businesses each deduct even $5,000 of interest annually, at a 20% tax rate that’s about $1 billion in collective tax savings.

  • The government essentially subsidizes business borrowing through these deductions. (This was one reason Congress put a cap on interest deductions for big corporations – to prevent highly-leveraged giants from avoiding too much tax.) For small businesses under the threshold, however, interest remains fully deductible, preserving those savings.

• Interest rates matter: In a low interest rate environment, the deduction might be modest. But interest rates have risen recently – for example, SBA loan interest rates in 2023 ranged roughly from 10% to 16%. Higher rates mean businesses pay more interest dollars.

  • The upside is a bigger deduction, but the downside is higher cash outlay. For instance, a $100,000 loan at a 5% rate costs $5,000 interest (maybe ~$1,100 tax saved if deducted at 22%). At a 12% rate, that same loan costs $12,000 interest (about $2,640 tax saved at 22%). The deduction softens the blow, but you’re still spending more in interest overall.

  • Tax deductions never fully offset interest costs – they just reduce the net cost. Always remember: if you spend $1 in interest and get, say, $0.25 back in tax savings, you’ve still paid $0.75 net. Borrow wisely; don’t take a loan just for a tax write-off.

• Business behavior and tax law: Data shows that businesses respond to tax rules. When the 2017 tax reform introduced the interest deduction limit for large businesses, companies with heavy debt had to reconsider financing strategies (for example, some shifted to more equity financing or leasing instead of debt to avoid nondeductible interest). Conversely, many small business owners consistently rank interest deductions and financing costs as a key tax benefit.

  • In one survey just after a major tax cut, over a third of small business owners said they planned to use their tax savings to pay down business debt – illustrating how intertwined taxes and loans are in business planning. The interest deduction is a factor entrepreneurs consider when deciding how to finance operations.

• State tax impact: (We’ll discuss state-by-state nuances next, but broadly) most states also allow business interest deductions. This means your interest write-off often lowers your state taxable income too, doubling the benefit in states with income tax.

  • However, a few states decoupled from federal rules in the case of the big-company interest limit – which can actually be a bonus for affected businesses (e.g., if federal law limits your interest deduction but your state doesn’t, you can still deduct it on the state return). For typical small firms, state conformity to federal rules means you’ll mirror the same interest deduction on state taxes, getting additional relief.

In short, the data confirms that business loan interest deductions are widely used and valuable. They encourage entrepreneurship by reducing the effective cost of borrowing. Just keep in mind that the primary purpose of a loan should be to finance growth or operations, not to chase a tax break. The tax break is the cherry on top that makes necessary borrowing a little more affordable.

Comparing Deduction Scenarios: Three Cases Side-by-Side

To further cement how business loan deductions can vary, let’s compare three common scenarios side-by-side. This will highlight the differences in what you can deduct in each case:

As you can see, Scenario 1 is the ideal for full deduction – all interest is written off, straightforwardly reducing taxes. Scenario 2 shows the importance of using loans strictly for business needs; mixing in personal use dilutes your tax benefit. Scenario 3 comes into play mainly for larger, highly-leveraged companies, where interest deductions can be deferred. Most small businesses will find themselves in Scenario 1 (or Scenario 2 if not careful with spending). The takeaway is to structure and use your loans in a way that maximizes the deductible interest and to be aware of thresholds as you grow.

(Internal Note: We’ve assumed U.S. federal rules in these scenarios. Now, let’s touch on how state tax rules can differ.)

State Tax Nuances: Business Loan Deductions by State

What about state taxes? If your business operates in the U.S., you’ll also be filing state income taxes in many cases. The good news is that most states follow the federal lead on business loan deductions – but there are some quirks to know:

• General conformity: The majority of states allow business interest expense deductions just as the federal government does. If you deducted $5,000 of interest on your federal return, your state return (in a state with income tax) will typically start with that federal income number, so it benefits from the deduction too. In essence, interest is usually deductible for state tax purposes as well, providing a double benefit.

• States and the 163(j) limit: When the federal government introduced the 30% interest limitation for large firms, states had to choose whether to adopt that rule. Some states “decoupled” from the federal limitation. For example, Indiana and Connecticut at one point opted not to enforce the 30% cap at the state level, meaning even if a big company couldn’t deduct all its interest federally, it could still deduct it on the state return.

  • Other states, like New York, conformed to the federal rules or only partially conformed. For instance, New York initially followed the 30% limit but chose not to adopt the temporary federal increase to 50% for 2019-2020, sticking with the stricter limit in those years.

• Static vs rolling conformity: States have different methods of tying into the Internal Revenue Code. Some automatically adopt current federal tax law (“rolling” conformity), while others lock in the Code as of a certain date (“static” conformity) unless the state legislature updates it.

  • California, for example, historically used a static conformity (often trailing behind federal changes). For a time, California did not conform to the new interest limit, effectively allowing full interest deductions on the state return even when federal law disallowed a portion. It’s important to check your state’s current stance – these laws change as states update their tax codes.

• Related-party interest: Many states have special rules denying deductions for interest paid to related parties in certain situations (to prevent companies from shifting income to low-tax states via intercompany loans). If your business structure involves loans from one affiliated company to another, be aware that some states might make you add back that interest on the state return. This is a complex area of state tax planning but relevant if you operate in multiple states or have parent-subsidiary loans.

• No state income tax? If you’re in a state like Texas or Florida (no personal income tax) and your business is a pass-through, you won’t have to worry about state tax on your business profits – so the interest deduction’s benefit is purely at the federal level for you. For C-corporations, states often have a corporate franchise or income tax; those usually do allow interest deductions similar to federal.

State tax treatment generally parallels federal treatment for most small businesses’ loan interest. However, subtle differences can exist, especially for larger businesses or unusual situations. It’s wise to have a tax professional review state-specific rules if you operate outside a single state. The core strategy remains: claim your full interest deduction federally, and then adjust on state returns only if a specific state law requires it.

(Now that we’ve covered the rules and variations, let’s clarify some jargon you might have seen along the way.)

 

🗝️ Key Tax Terms and Entities You Should Know

When dealing with business loan deductions, you’ll encounter some tax terms and entities. Here’s a quick glossary of key concepts:

• IRS (Internal Revenue Service): The U.S. federal tax authority. The IRS is the government agency that administers and enforces tax laws, processes tax returns, and issues guidance on deductions like interest expenses. In short, they make and interpret the rules on what’s deductible.

• SBA (Small Business Administration): A U.S. government agency that supports small businesses. The SBA isn’t a tax agency, but it guarantees many small business loans (such as 7(a) loans). If you have an SBA-backed loan, the interest is deductible just like any other business loan interest. (The SBA also offers guidance on financial management, though tax specifics come from the IRS.)

• EIN (Employer Identification Number): A business’s federal tax identification number. Think of it as the business equivalent of a Social Security Number. You use your EIN to file business tax returns and forms. If you deduct interest, your EIN is how the IRS ties that deduction to your business entity. Sole proprietors without employees can use their SSN, but most businesses have an EIN.

• Schedule C: The tax form for sole proprietors to report business income and expenses. It’s filed with your Form 1040 individual tax return if you’re self-employed or a single-member LLC. Loan interest paid for the business is one of the expenses you can list on Schedule C (line 16, “Interest,” is where it goes – separated into mortgage interest and other interest). The interest deduction on Schedule C directly reduces your adjusted gross income.

• Form 1120-S: The annual tax return form for S corporations. An S corporation is a pass-through entity (profits and deductions pass through to shareholders’ personal returns). On Form 1120-S, the corporation will deduct business expenses including interest to arrive at ordinary business income. That net income (or loss) then flows to owners via a Schedule K-1. If you’re an S corp owner, you don’t deduct business loan interest on your personal return directly – the S corp does on the 1120-S, and you get the benefit through a lower K-1 income.

• C Corporation: A standard corporation that is taxed separately from its owners. C corps file a Form 1120 (not to be confused with 1120-S) for their taxes. Interest expense for a C corp is deducted on Form 1120 as a business expense, reducing the corporation’s taxable profits. Unlike an S corp, a C corp pays tax at the corporate level (21% federal rate currently), so an interest deduction saves the company tax directly. (If you own a C corp, you don’t see the deduction on your personal taxes at all – it’s all within the company’s return.)

• Partnership: A business entity with two or more owners (partners) that passes through taxes. Partnerships file Form 1065, an informational return, and like S corps, issue K-1s to partners. Interest on partnership business loans is deducted on the Form 1065, reducing the partnership’s ordinary income. Each partner’s K-1 will reflect their share of the interest expense (indirectly, through lower allocated income).

  • Partnerships themselves typically don’t pay income tax (the partners do individually on their share of profit), so the interest deduction effectively lowers the income each partner must report. (LLCs with multiple members often file as partnerships by default, so this applies to many LLCs too.)

These terms show up frequently when discussing business taxes. Understanding them helps clarify who is deducting the interest and where. For instance, you personally deduct interest on Schedule C if you’re a sole prop, but your company deducts it on Form 1120 if you run a C corp. The deduction still puts money in your pocket (via lower taxes), but the mechanism differs by entity.

(Next, let’s weigh the overall benefits and drawbacks of business loan deductions – because, as with anything, there are two sides to consider.)

Pros and Cons of Business Loan Interest Deductions

Every tax break comes with upsides and some potential downsides or trade-offs. Here’s a balanced look at the advantages and disadvantages of deducting business loan interest:

In weighing these pros and cons, it’s clear that business loan interest deductions are a net positive for most entrepreneurs – they lower the cost of capital and free up resources. However, it’s crucial to borrow wisely and for the right reasons. The tax tail should not wag the dog: don’t incur debt just to get a deduction. But if a loan makes business sense, the interest write-off is a valuable perk to take advantage of.

⚖️ How Courts View Loan Interest Deductions (Key Rulings)

Tax deductions sometimes end up in court, and interest deductions are no exception. Over the years, courts have weighed in on various disputes, often to clarify the boundaries of what’s deductible. Here are a few notable insights from court rulings and IRS enforcement that shed light on business loan deductions:

• Bona fide debt vs. fake debt: Courts have repeatedly emphasized that only genuine interest on genuine debt is deductible. In cases where business owners tried to deduct “interest” on what was essentially a disguised equity investment or gift, the IRS and courts shut it down.

  • For example, if a shareholder “loans” money to their own corporation but there’s no intent to repay (no set terms, no enforcement), the Tax Court can recharacterize it as a capital contribution – meaning no interest deduction for the company (and no taxable interest income to the shareholder, either).

  • A famous principle from court decisions is to look at factors like a formal promissory note, a repayment schedule, and whether interest is actually paid. Without those, what you call a loan might not be respected as one for tax purposes. The lesson: keep loans formal and at market terms, even with related parties, if you want the interest to be deductible.

• Loans from friends & family: Building on the above, the IRS has special scrutiny for interest paid to friends or relatives. In one Tax Court case, a taxpayer was not allowed to deduct interest on a loan from a family member because the arrangement looked too informal (no real expectation of repayment).

  • The courts essentially said: if it walks like a gift, it’s a gift; you can’t just label it interest on a loan to get a tax break. This doesn’t mean you can’t borrow from family at all – it means you must treat it as a real loan (document it, charge a reasonable interest rate, etc.). Otherwise, the “interest” is not considered bona fide interest by the IRS or the courts.

• Interest tracing and burden of proof: A critical court ruling illustrated the importance of the IRS tracing rules for interest. In a case involving an investment broker (Brooks v. Commissioner), the taxpayer had a loan which was later forgiven by his employer and was trying to exclude the forgiven interest from income on the argument that, had he paid it, it would have been deductible.

  • The Tax Court required him to prove how the loan money was used in order to decide if the interest would have been deductible. He failed to provide convincing evidence of business or investment use of the funds, so the court treated the interest as personal (non-deductible) – therefore the forgiven interest became taxable cancellation-of-debt income.

  • This case underscored that if you want an interest deduction, you may need to prove the loan proceeds were used for deductible purposes. Courts will deny the deduction (or related tax benefits) if you can’t trace the funds to a business use. Always keep clear records of where loan money goes (invoices, account statements, etc.), in case you need to defend your deduction.

• Limits are constitutional (and strict): There haven’t been successful court challenges to the basic interest limitation rules – the 30% cap for large businesses has been upheld as just part of tax law Congress is allowed to enact. Some companies have tried to get creative in avoiding the limit (for instance, by classifying what is essentially interest as some other deductible fee or rent).

  • The IRS and courts look beyond labels to substance. In one scenario, a company paid “appreciation interest” to a lender – essentially a form of additional interest tied to profits – and the Tax Court allowed it as deductible interest, not an equity distribution, because the loan documents and behavior supported it being true interest on debt.

  • This was a win for the taxpayer and shows that courts honor the interest deduction if the transaction is genuinely debt, even if terms are unusual. But if it had been viewed as a profit-sharing arrangement (equity), the deduction would have been denied. Again, the fine line between debt and equity is a recurring theme in rulings.

• Personal vs. business interest in disguise: Courts also guard against creative attempts to deduct personal interest. For instance, interest on personal credit cards or loans used for personal expenses is not deductible – and moving personal debt into a business doesn’t automatically make it deductible.

  • If you, say, transfer your personal car loan to the company books but the car is mostly personal-use, the IRS can disallow that interest deduction (and the courts would side with the IRS). The overarching judicial stance is “substance over form.” It’s the actual use of the loan and the true nature of the transaction that determine deductibility, not just the fact that you ran something through a business account.

Key takeaway from the courts: To safely deduct interest, keep it honest and well-documented. Make sure loans are legitimate, funds are used for the business, and interest is truly interest (not something else in disguise). If you do that, the courts (and the IRS) generally will uphold your deduction. When in doubt, consult a tax advisor – they can point to specific rulings and IRS regulations to guide complex situations (like related-party loans or unusual financing structures) so you stay on solid ground.

FAQs – Quick Answers to Common Questions

Finally, let’s address some frequently asked questions business owners have (as seen on forums and Reddit threads), with straightforward answers:

• No. You cannot deduct the repayment of the loan principal on a business loan – only the interest portion is deductible as a business expense.

• No. Money you receive from a business loan is not taxable income, since it’s borrowed funds (and paying back the loan principal is not tax-deductible either).

• Yes. Interest on a business credit card is tax-deductible, as long as the card was used for business-related purchases. (Personal credit card interest remains non-deductible.)

• Yes. If you take out a personal loan and use it entirely for business expenses, the interest can be deducted as a business expense – just keep clear records to prove the funds went to the business.

• No. If you haven’t actually used your loan funds yet (for example, the cash is just sitting in your account), the interest accruing is not currently deductible. You must spend the loan on the business for the interest to qualify as a deduction.

• No. Interest on informal loans from friends or family usually isn’t deductible unless you formalize the arrangement. Without a real lender-debtor agreement and interest charged, the IRS won’t treat it as a valid business loan interest deduction.

• Yes. If a business loan is forgiven (canceled), the forgiven amount is generally taxable income to you. And any interest that was forgiven or never paid can’t be deducted, since you didn’t actually pay it.

• No. Simply guaranteeing a business loan doesn’t allow you to deduct the interest on your personal taxes. Only if the business defaults and you, as guarantor, pay off the loan (making it essentially your loan) could you potentially deduct that interest on your return.