Yes, you can lend money to your own LLC, and it’s a common way to inject short-term cash without giving up equity or going to a bank. The arrangement is legal, but the IRS and the courts will look at it harder than they would a loan between strangers. If the paperwork is thin or the terms look nothing like what an outside lender would accept, the “loan” gets reclassified as a capital contribution. That strips the tax benefits and, if the business fails, drops you behind every other creditor in line.
Done correctly, it takes a signed promissory note, a market-rate interest charge, actual repayments on schedule, and an entry on the LLC’s books showing the debt. Done carelessly, it’s an equity contribution dressed in a loan’s clothes.
If You’re a Single-Member LLC, Read This First
An LLC with one owner that has not elected to be taxed as a corporation is a “disregarded entity” for federal tax purposes.1Internal Revenue Service. Single Member Limited Liability Companies The IRS treats you and the LLC as the same taxpayer. You cannot lend money to yourself in a way the tax code will recognize.
Writing a check from your personal account to your business account counts as a capital contribution, no matter what your promissory note says. You can’t deduct interest on the LLC side or report interest income on the personal side, because the whole transaction is invisible for federal income tax purposes. If you want the tax treatment of a real loan, you need to either add a second member or file Form 8832 and elect corporate tax treatment before you set the loan up.
Everything that follows assumes your LLC has more than one member or has elected corporate taxation.
Why Loan Versus Capital Contribution Matters
A loan creates a debtor-creditor relationship. The LLC owes you the principal back with interest, and your ownership percentage doesn’t change. A capital contribution is an investment in exchange for equity. It raises your capital account and your stake, but the LLC has no obligation to pay it back.
The difference bites hardest when the business is in trouble. As a lender, you stand with the other creditors. As a capital contributor, you collect only after every creditor has been paid in full, which in a bankruptcy usually means nothing.
There’s a tax basis angle too. In an LLC taxed as a partnership, a capital contribution raises the contributing member’s basis dollar for dollar, which lets you deduct more of the LLC’s losses on your personal return. A loan also raises your basis, but through a different mechanism: the loan becomes a partnership liability, and your share of that liability counts as a deemed contribution.2Office of the Law Revision Counsel. 26 USC 752 – Treatment of Certain Liabilities For an LLC that has elected S corporation treatment, the rules tighten. You can only deduct losses beyond your stock basis if you have personally lent money to the company; loan guarantees don’t count.3Internal Revenue Service. S Corporation Stock and Debt Basis
What the IRS Looks for in a Real Loan
No single factor settles whether a transfer is debt or equity, but failing on several of them invites recharacterization. These are the ones that carry weight:
- A written agreement with fixed terms. A signed promissory note with principal, interest rate, repayment schedule, and maturity date is the floor. Verbal arrangements between an owner and their own company have almost no credibility.
- A market-rate interest charge, meaning at least the IRS Applicable Federal Rate. Zero or token interest signals that neither side treats it as real debt.
- Actual repayments on schedule. Consistent payments are the single strongest indicator of a genuine loan. Sporadic or missing payments make it look like equity.
- Enforcement behavior. A real creditor would send a demand letter, charge a late fee, declare a default. If you never do any of that when payments slip, the IRS reasonably questions whether an obligation really exists.
- A reasonable debt-to-equity ratio. An LLC financed mostly through owner “loans” with very little real equity looks thinly capitalized.
- A legitimate business purpose. Loans timed to shift income or precede large loss deductions draw attention.
Drafting the Promissory Note
The promissory note is the single most important document in the transaction. It should state the exact principal, the interest rate, whether payments are monthly, quarterly, or annual, whether early payments are interest-only, the maturity date, and what happens on default, including late fees, acceleration of the balance, and the remedies you can pursue.
On the interest rate: use at minimum the Applicable Federal Rate in effect for the month the loan is made. The AFR varies by loan duration. As of March 2026, the annual-compounding AFR is 3.59% for short-term loans (up to three years), 3.93% for mid-term loans (three to nine years), and 4.72% for long-term loans (over nine years). The rates change monthly, so check the IRS’s AFR page for the rate in effect when your loan closes.4Internal Revenue Service. Revenue Ruling 2026-65Internal Revenue Service. Applicable Federal Rates (AFRs) Rulings
One narrow exception: for compensation-related and corporate-shareholder loans, the below-market interest rules don’t apply on any day the total outstanding loan balance between you and the LLC is $10,000 or less. The exception disappears if one of the principal purposes of the arrangement is tax avoidance.6GovInfo. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates
Formalizing the Loan Through the LLC
A promissory note alone isn’t enough. The LLC has to formally accept the loan, and the process should follow whatever the operating agreement requires. Some operating agreements restrict member loans or require a supermajority vote; ignoring those provisions weakens the loan if anyone challenges it later.
Hold a meeting of the members or managers, or execute a written consent if the operating agreement allows it, and vote on the loan. Record the decision in the LLC’s minutes, including the amount, interest rate, repayment terms, and vote tally. Those minutes become part of the permanent record.
When you sign the note, you sign once personally as the lender, and a separate authorized representative of the LLC signs as the borrower. In a single-member LLC that elected corporate taxation, you sign both roles, but use separate signature blocks to keep the capacities clear. Move the money by check or wire from your personal bank account to the business account. Don’t commingle, and don’t move it informally.
Tax Treatment of the Interest Payments
Interest you receive from the LLC is taxable income on your personal return, whether or not the LLC issues you a Form 1099-INT.7Internal Revenue Service. Topic No. 403, Interest Received The principal portion of each payment isn’t income; it’s just the return of your original money.
On the LLC’s side, the interest paid is generally deductible as a business expense.8Office of the Law Revision Counsel. 26 USC 163 – Interest Principal payments aren’t deductible.
If the LLC pays you at least $10 in interest during the year, it must file Form 1099-INT reporting the amount to you and the IRS.9Internal Revenue Service. About Form 1099-INT, Interest Income Below $10, no 1099 is required, but you still have to report the interest.
Below-Market Loans and Imputed Interest
If you charge less than the AFR, the IRS treats the gap between your rate and the AFR as “forgone interest.” Under the imputed interest rules, that forgone amount is deemed transferred from you to the LLC and then back to you as an interest payment.10Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates You pay tax on interest you never actually received. Charging at least the AFR from day one avoids this.
If the LLC Can’t Pay You Back
If the business struggles and you forgive part or all of the loan, the forgiven amount is generally cancellation of debt income to the LLC, reported on its return for the year of cancellation.11Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not? In a partnership-taxed LLC, that income flows through to the members’ personal returns. In an S corporation-taxed LLC, it’s handled at the corporate level.
There’s an exception. If the LLC (or, in a partnership-taxed LLC, the individual member) is insolvent at the time of the cancellation, the COD income can be excluded up to the amount of the insolvency. Insolvency means liabilities exceed the fair market value of assets, measured immediately before the discharge.12Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness Claiming the exclusion requires filing Form 982 and generally reducing certain tax attributes, like the basis of assets, by the excluded amount.
In a formal bankruptcy, the risk goes beyond taxes. Because an LLC owner counts as an “insider” under the Bankruptcy Code, courts scrutinize owner loans far more aggressively than arms-length debts. A trustee can ask the court to equitably subordinate your loan claim, pushing you behind the other unsecured creditors. This happens most often when the LLC was undercapitalized and the owner labeled equity as debt, or when the owner engaged in self-dealing that harmed other creditors.
If the LLC Later Borrows From a Bank
If your LLC takes on an institutional loan, expect the lender to require a subordination agreement as a condition of closing. Subordination pushes your loan behind the bank’s debt. Until the bank is fully repaid, you typically can’t collect payments, demand repayment, accelerate the balance, foreclose on collateral, or sue the LLC to enforce the debt.
This isn’t negotiable in practice. Banks see owner loans as a threat to their security because the owner could drain cash to repay themselves ahead of the bank. If you plan to seek outside financing, factor subordination in before you lend, because it may freeze repayment of your personal loan for years. Securing your loan with LLC collateral through a UCC-1 filing is possible and adds legitimacy, but a later bank loan will almost certainly require you to subordinate the lien along with the debt.