Yes, you can transfer a personal loan to your business, but no single filing makes it happen. You have three practical routes: have the business take out its own loan and pay off the personal one, get the current lender to formally substitute the business as the borrower, or keep the loan in your name while restructuring the economics on the company’s books. Each route carries different legal weight, and the tax consequences can be significant if you skip the details.
Refinancing Through a Business Loan
The cleanest approach is having your business apply for its own commercial loan and use the proceeds to pay off your personal debt. The company receives the funds, sends them to the personal lender, and your individual obligation ends when the balance is marked satisfied. The business then owes a separate lender under a new agreement with its own terms.
This method works because it doesn’t require your original lender to cooperate beyond accepting payment. Most loan agreements allow early payoff, sometimes with a prepayment penalty, so you don’t need special permission. The catch is that your business has to qualify on its own. A new company with thin revenue history may not get approved for enough credit to cover the balance, or the rate may run well above what you locked in personally.
One detail people miss: if the personal loan was secured by collateral like a vehicle or equipment, paying it off doesn’t automatically release the lien. Confirm the personal lender files a lien release after final payment. If the business loan also requires collateral, the new lender will want clean title on whatever you pledge.
Novation: Having the Lender Substitute the Borrower
A novation replaces you as the borrower with your business entity on the existing loan. The loan continues under the same terms, but your company steps into your shoes as debtor. This requires something refinancing doesn’t: your current lender’s written consent. All three parties have to agree in writing. Without that consent, any internal agreement between you and your business is just that—internal—and the lender can still come after you personally if payments stop.
The paperwork is usually an assumption agreement or a formal amendment to the original promissory note, naming the business as the new primary debtor and explicitly releasing you from your original obligation. Have a lawyer review the release language. If it isn’t airtight, you can end up liable on both the original obligation and the new arrangement. The lender may also charge a processing fee for the assumption.
Lenders agree to novations less often than borrowers hope. They underwrote the loan based on your personal income, credit, and assets. A business entity, especially a young one, may look like a step down in creditworthiness. Many lenders will only consent if the company has strong financials, or if you sign a personal guarantee, which partly defeats the purpose of the transfer.
Treating the Loan as a Capital Contribution
If the lender won’t cooperate and the business can’t qualify for its own financing, there is a third option: keep the loan in your name but restructure the economics internally. You treat the original loan proceeds as an investment in the company. On the business’s books, the funds appear as a capital contribution that increases your ownership equity. You remain legally responsible to the bank, but the business takes over making the payments.
The company tracks this through a liability account, often labeled something like “Due to Owner” or “Member Loan Payable.” Each month the business makes the payment and records it as repaying its internal obligation to you. The approach gives the business the economic burden of the debt without requiring the bank’s cooperation, and it creates a structured path for you to be reimbursed over time.
The limitation is obvious. You’re still personally liable if the business can’t make payments. Your name stays on the loan and your credit is on the line. For businesses that aren’t yet strong enough to borrow on their own, this is often the most practical starting point. Document the arrangement carefully, because the IRS has specific rules about money moving between owners and their businesses.
Tax Consequences You Have to Plan For
Moving debt between yourself and your business isn’t only a banking exercise. It’s a tax event that can create unexpected income if handled carelessly. The IRS looks at the substance of these transactions, not the labels on them, and the rules differ depending on whether your business is a C-corporation, S-corporation, or LLC.
Constructive Dividends
When a corporation pays off its shareholder’s personal debt, the IRS can treat that payment as a taxable dividend to the shareholder. It doesn’t matter that no one declared a dividend or sent money to the owner directly. The IRS looks at whether the shareholder received an economic benefit, and having your company pay your personal loan qualifies.1Internal Revenue Service. Topic No. 404, Dividends and Other Corporate Distributions The taxable portion is the share of the distribution that comes from the corporation’s earnings and profits.2Office of the Law Revision Counsel. 26 U.S. Code 301 – Distributions of Property
For C-corporations, the payment can be taxed at dividend rates on your personal return. For S-corporations and LLCs taxed as partnerships, the mechanics differ: distributions reduce your basis in the entity first, and any excess over basis triggers capital gains. Either way, a poorly structured transfer can be recharacterized as taxable income.
Gain When Assumed Liabilities Exceed Your Basis
If you’re contributing property to a corporation and the business assumes your personal debt as part of the deal, a special rule applies. Transfers of property to a corporation in exchange for stock are normally tax-free when you control the corporation.3Office of the Law Revision Counsel. 26 U.S. Code 351 – Transfer to Corporation Controlled by Transferor But that protection has a limit. If the total liabilities the corporation assumes exceed your adjusted basis in the transferred property, the excess is treated as taxable gain.4Office of the Law Revision Counsel. 26 U.S. Code 357 – Assumption of Liability Whether that gain is capital or ordinary depends on the property. The transaction can feel like a routine internal reorganization, but the IRS sees it as a recognition event.
Interest Tracing and Deductibility
Interest on business debt is generally deductible.5Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest The wrinkle is that the IRS doesn’t care what the loan is called or whose name is on it. It cares what the borrowed money was actually used for. Under the interest tracing rules, deductibility follows the use of the loan proceeds, not the nature of the loan itself.6eCFR. 26 CFR 1.163-8T – Allocation of Interest Expense Among Expenditures
If you took out a personal loan and used every dollar to buy business equipment, the interest may be deductible as a business expense regardless of whose name is on the note. If you took a personal loan, deposited it into a joint account, and spent part of it on a vacation before putting the rest into the business, the interest gets split. The easiest way to prove how funds were used is to keep business loan proceeds in a separate account.7Internal Revenue Service. Publication 535 – Business Expenses, Chapter 4: Interest
Imputed Interest on Owner-Business Loans
If you go the capital contribution route and the business repays you over time, the IRS treats the internal arrangement as a loan, and loans between an owner and their business must carry a minimum interest rate. That minimum is the Applicable Federal Rate, published monthly. For February 2026, the AFR runs from 3.56% annually for short-term loans to 4.70% for long-term loans.8Internal Revenue Service. Revenue Ruling 2026-3, Applicable Federal Rates
Charge less than the AFR, or nothing at all, and the IRS imputes interest anyway. The gap between what you actually collected and what the AFR says you should have collected is treated as taxable income to you, even though you never received it.9Office of the Law Revision Counsel. 26 U.S. Code 7872 – Treatment of Loans With Below-Market Interest Rates The rule applies to loans between corporations and shareholders as well as compensation-related loans between employers and employees. In practice: document the internal loan with a written promissory note, charge at least the AFR, and actually make and record the interest payments.
On the business side, if the company pays you $600 or more in interest during the year, it must file Form 1099-INT reporting those payments.10Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID Skipping that filing is one of the fastest ways to draw IRS scrutiny to the whole arrangement.
What the Receiving Lender Will Require
Whether you’re refinancing or seeking a novation, the lender on the receiving end needs to see that your business can carry the debt. Expect them to evaluate the company’s creditworthiness alongside your personal credit.11U.S. Small Business Administration. Loans They’ll want financial statements showing consistent revenue, typically at least two years of tax returns, recent profit and loss statements, and sometimes a balance sheet. Your entity has to be properly registered and in good standing with the state; a suspended or revoked LLC or corporation won’t qualify for anything.
Lenders will also scrutinize the original loan agreement for anti-assignment clauses or acceleration provisions. These contract terms can block a transfer or trigger immediate repayment of the full balance if the debt changes hands without permission. For loans secured by real property, federal law specifically authorizes lenders to include due-on-sale clauses that accelerate the balance when the property is sold or transferred.12Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions Unsecured personal loans have their own transfer restrictions written into the contract. Read yours carefully before starting the process.
Even after approval, expect the lender to require a personal guarantee. This is standard practice in small business lending and means you remain secondarily liable if the company defaults. A personal guarantee partially undercuts the liability separation you’re after, but it’s often the price of getting the deal done. You can try to negotiate it away later once the business builds credit history and revenue.
Protecting Your Liability Shield
The point of having an LLC or corporation is separating personal assets from business obligations. Transferring debt sloppily can weaken that protection. Courts can disregard a business entity’s separate legal existence, a concept called piercing the corporate veil, when owners commingle personal and business finances or fail to observe corporate formalities. Using business funds to make payments on an undocumented personal loan, with no formal agreement in place, is exactly the kind of conduct that invites it.
Before the business takes on any debt obligation, document the decision through a formal board resolution for a corporation or member consent for an LLC, and record it in the company’s minute book. The resolution should authorize the specific transaction, identify the loan amount and terms, and explain the business purpose. That record shows the business acted as a separate entity following its own governance procedures.
Keep all loan payments flowing through the business bank account. Don’t route business loan payments from your personal checking account or the other way around. If the capital contribution route is your path, the written promissory note between you and the company is essential, both for the IRS and because it shows any future creditor or court that the arrangement was conducted at arm’s length. The formality can feel excessive for a one-person LLC, but it’s the documentation that holds up when it matters.