Business loan costs and tax: the basics

Owners often ask whether a loan will “pay for itself” through tax deductions. The short answer is that some costs of borrowing are usually deductible and some are not, and the details depend on your circumstances. This guide covers the general principles; your accountant should confirm how they apply to you.

The general principles

Cost	General treatment
Interest on money used for business purposes	Generally deductible
Principal repayments	Generally not deductible
Establishment and other borrowing costs	May be deductible, sometimes spread over several years
GIC and SIC incurred from 1 July 2025	Not deductible
Equipment finance payments	Depends on the structure: chattel mortgage, lease or hire purchase

Why purpose matters

Deductibility follows how the borrowed money is used. A loan secured against your home but used entirely for business stock is generally treated differently from a home loan used to buy the home. That is why clear records matter: keep loan documents, statements and evidence of what the money paid for. If business and personal money are mixed, the picture gets murky.

Quick sense check? Tell us the amount and the purpose. A person will call with an honest read, and your credit file stays exactly as it is.

Interest

Interest on business borrowing is generally deductible in the year it is incurred. If interest is prepaid or capitalised on a property-secured loan, the timing of deductions can be more complex. Ask your accountant how it applies before choosing a structure. See prepaid vs capitalised interest for how each works.

Borrowing costs

Fees for setting up a loan, such as establishment fees and some legal costs, may be deductible. In some cases they are spread over several years rather than claimed all at once. Your accountant will know the rules.

The GIC change

For many years, the ATO’s general interest charge on overdue tax was deductible. For GIC and shortfall interest charge incurred on or after 1 July 2025, it is not. That changes the comparison between carrying a tax debt and clearing it with funding. Our guide on the GIC change explains more.

Equipment

Chattel mortgages, finance leases and hire purchase are treated differently for income tax and GST. The instant asset write-off may also apply to eligible assets. Get advice before deciding the structure, not after. See equipment finance.

Do not borrow for the deduction

A deduction only reduces tax by a fraction of the cost. Borrowing money you do not need to create a deduction leaves you worse off. Borrow because the business needs the money and can repay it, then claim what you are entitled to.

Total cost first

When comparing offers, focus first on the total cost of finance, then ask your accountant about the after-tax effect. Our guide to total cost of finance shows how to calculate it.

Related reading

• GIC is no longer tax deductible: what it means: From 1 July 2025, the ATO’s general interest charge is no longer tax deductible. What that does to the real cost of carrying a tax debt and your options.
• EOFY funding checklist: An end-of-financial-year checklist for business funding: equipment timing, the instant asset write-off, tax bills, stock and arranging facilities for July.
• Equipment finance: Equipment finance lets the business buy machinery, vehicles and tools without draining cash. How asset-secured lending works and what to check first.
• Using home equity to fund your business: Should you use your home equity to fund your business? How it works, the real risks, how to protect your family and how to decide whether it is right.
• Total cost of finance, explained: Total cost of finance is everything you repay above what you receive. How to calculate it from any quote and use it to judge whether a loan is worth it.

A quick glossary

• General interest charge: the ATO’s interest on overdue tax, set quarterly and compounding daily; not deductible when incurred from 1 July 2025.
• Total cost of finance: the dollar gap between the cash that reaches your account and everything you hand back over the life of the loan, fees included.
• Capitalised interest: interest that rolls into the balance owing rather than leaving your account each month.
• Prepaid interest: interest for an agreed period settled at the start of a loan, usually out of the advance, leaving nothing to pay for that period.

Five things to confirm with any lender

• What will this cost in total, not just per week?
• Are there establishment, line or exit fees?
• Can the term be extended if a sale or refinance is delayed?
• Which assets or properties are being used as security?
• How quickly can the facility be closed if I no longer need it?

Where your accountant fits in

Your accountant knows your numbers better than anyone, so involve them early. They can confirm figures for the enquiry, flag tax effects of different structures, and tell you whether the timing of a loan suits your BAS and tax cycle. A lender’s job is to assess whether funding fits; your accountant’s job is to make sure the business is set up to carry it well. The two work best together.

Quick recap

• Business-purpose interest is generally deductible
• Principal repayments are not deductible
• Some borrowing costs may be spread over several years
• GIC incurred from 1 July 2025 is not deductible

How the process runs

After you enquire, a real person picks up your details and calls to talk through the purpose, the timing and how the money will be repaid. Unsecured funding is assessed mainly on bank statements and turnover. Property-secured funding is assessed on the property, with no valuation required, and interest can be prepaid or added to the loan. You see the total cost before you commit, and the credit check only happens once you decide to proceed. If the timing is tight, tell us the deadline on the first call so the work can be planned around it.

When borrowing helps, and when it does not

Good borrowing has a job and an end date. Before you enquire, write down in one sentence what the money is for and how it will be repaid. If that sentence is easy to write, you are probably in the right place. If it is not, it is worth a closer look at the business’s cash flow before taking on new repayments.

A simple preparation list

Have these within reach and the process moves quickly, because each one answers a question the assessor would otherwise have to come back and ask:

• ABN, business structure and how long you have traded.
• Recent business bank statements, ideally shared online.
• What the money is for and how it will be repaid.
• Any tax debt, default or arrears you should mention up front.
• Contact details for anyone else who would need to sign.

Help us match you first time

Every question on the form is there for a reason: it changes which funding fits. Describe the business as it stands today rather than the version you expect in six months. Mention any default, tax debt or recent decline in the notes. We look at those situations all the time, and knowing early lets us head straight for options that can actually work.

Let’s see what fits

You can check your eligibility in about a minute. There is no credit check to enquire, no lead farming and no call centre script, just a person who looks at your situation and tells you plainly what could work. The more accurate the answers on the form, particularly the amount, revenue and whether you own real estate, the faster and better that first conversation will be.