Loan Repayments – Clear Your Doubts Fast (2026 Guide)

Managing business finances can often feel like walking a tightrope. You're constantly balancing cash flow, expenses, and investments to ensure the growth and stability of your enterprise. One question that frequently arises for business owners is whether loan repayments can be considered a business expense. Understanding this can have significant tax implications and impact your overall financial strategy.

Understanding Loan Repayments as Business Expenses

At its core, the concept of whether loan repayments are a business expense revolves around tax deductibility. In Australia, the Australian Taxation Office (ATO) distinguishes between different components of loan repayments: the principal and the interest.

The principal portion of your repayment is not tax-deductible because it represents the return of borrowed capital. However, the interest component of the repayment is generally considered a business expense and can be deducted from your taxable income, provided the loan was used for business purposes.

For example, if you took out a $100,000 loan to purchase new equipment for your business, the interest paid on this loan can be claimed as a business expense. This can ease your tax burden and improve your cash flow.

Current Loan Rates and Requirements

As of 2026, business loan interest rates in Australia typically range from 6.49% to 12%, influenced by factors such as the lender, loan amount, and the financial health of your business. With access to 83+ lenders, Esteb and Co can help you navigate these options to find a loan that best suits your business needs.

Eligibility criteria for business loans can vary, but common requirements include:

• A minimum business operating history of 12 months
• Evidence of consistent revenue
• A good credit score (usually 600+)
• Comprehensive business financial statements

Steps to Claiming Loan Interest as a Business Expense

To effectively claim loan interest as a business expense, follow these steps:

1. Ensure Business Purpose: Verify that the loan was used solely for business purposes. Personal loans or mixed-use loans may complicate deductibility.
2. Keep Detailed Records: Maintain accurate records of loan agreements, interest statements, and payment receipts. These documents are crucial for substantiating your claims.
3. Separate Loan Components: Clearly differentiate between principal and interest in your financial records. Only the interest portion is deductible.
4. Consult with a Tax Professional: Engage with a tax advisor to ensure compliance with ATO regulations and maximise your deductions.
5. File Accurately: Include the interest expense in your business's tax return under 'deductible expenses'.

Tips and Considerations

Here are some expert tips to keep in mind when dealing with loan repayments and business expenses:

• Review Loan Terms: Before taking out a loan, thoroughly understand the interest rates and repayment terms. This can prevent unexpected costs and aid in financial planning.
• Consider Refinancing: If interest rates fall, refinancing your loan could reduce your repayment burden, freeing up cash flow for other business activities.
• Utilise Lender Networks: With Esteb and Co's access to 83+ lenders, you have a better chance of securing favourable loan terms tailored to your business's unique needs.
• Monitor Financial Health: Regularly review your business finances to ensure that your loan repayments remain manageable and do not strain your liquidity.

Frequently Asked Questions

Here are some common questions about loan repayments and business expenses:

• Can I claim the entire loan repayment as a business expense?
  Only the interest component of the loan repayment is deductible as a business expense, not the principal.
• What if I use the loan for both personal and business purposes?
  You can only claim the interest portion related to the business use. It's essential to keep clear records of the loan's purpose.
• Does the type of loan affect its deductibility?
  Yes, the loan must be used for business purposes to qualify. Personal loans, unless used for business, typically do not qualify.
• How can I improve my chances of getting a business loan?
  Maintain a strong credit score, provide detailed financial records, and demonstrate a consistent revenue stream.
• Is refinancing a good option for managing cash flow?
  It can be, especially if you can secure a lower interest rate, reducing your monthly repayment obligations.
• What happens if I miss a loan repayment?
  Missing a repayment can affect your credit score and incur penalties. Contact your lender immediately to discuss options.
• How often should I review my loan arrangements?
  Regular reviews, at least annually, can ensure your loan remains competitive and suitable for your business's changing needs.