Yes, you can lend money to your own LLC, and it’s a common way to inject short-term capital without giving up equity. The arrangement holds up only if you treat it as a real loan: a signed promissory note, interest at least at the IRS Applicable Federal Rate, a repayment schedule the LLC actually follows, and formal authorization on the LLC’s side. Structure it loosely and the IRS or a bankruptcy court will recharacterize the “loan” as a capital contribution, which erases the tax benefits and drops you behind every other creditor if the business fails. One threshold issue decides whether the question even has a tax answer for you: if you’re the sole owner of an LLC that hasn’t elected corporate taxation, the IRS won’t recognize the loan at all.
The Single-Member LLC Problem
If your LLC has one owner and you haven’t filed for corporate tax treatment, the IRS treats it as a “disregarded entity” — you and the LLC are the same taxpayer for federal income tax purposes.1Internal Revenue Service. Single Member Limited Liability Companies You cannot lend money to yourself in a way the tax code recognizes. Writing a check from your personal account to the business account is a capital contribution regardless of what the promissory note says. There’s no interest deduction on the LLC side and no interest income on your personal side, because the whole transaction is invisible.
Two workarounds exist. Bring in a second member so the LLC is taxed as a partnership by default, or file Form 8832 to elect corporate tax treatment. Do this before the loan, not after.
Loan or Capital Contribution: Choose Before You Transfer
Money moving from an owner to an LLC is either a loan or a capital contribution, and the choice has to be made before the transfer, not reconstructed afterward. A loan creates a debtor-creditor relationship: the LLC owes you the money back with interest, your ownership percentage doesn’t change, and if the business winds down you stand in line with other creditors. A capital contribution buys equity: it raises your capital account and possibly your ownership stake, but the LLC owes you nothing, and you collect only after every creditor is paid in full.
The distinction also affects your tax basis. In an LLC taxed as a partnership, a capital contribution raises your basis dollar for dollar, which increases the losses you can deduct on your personal return. A loan raises basis too, but indirectly, because the loan becomes a partnership liability and your share of it 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 taxation, only direct loans from the member (not guarantees of third-party debt) create the debt basis you need to deduct losses beyond your stock basis.3Internal Revenue Service. S Corporation Stock and Debt Basis
What Makes It a Real Loan
The IRS and the courts use a set of factors to test whether a purported owner loan is genuine debt or disguised equity. No single factor decides the outcome, but failing several invites recharacterization.
- A signed promissory note with a stated principal amount, interest rate, repayment schedule, and maturity date. Verbal arrangements between an owner and their own company carry almost no weight.
- Interest at or above the IRS Applicable Federal Rate. Zero or token interest signals that neither side treats the arrangement as real.
- Actual, consistent repayments. Sporadic or years-late payments look like equity distributions.
- Enforcement behavior consistent with a real creditor. If you never send a demand letter, never charge a late fee, and never declare a default when payments stop, the IRS reasonably questions whether any obligation exists.
- A reasonable debt-to-equity ratio. An LLC financed mostly by owner “loans” and thin on actual equity looks like a thinly capitalized company using debt labels to grab tax benefits.
- A legitimate business purpose. Loans timed conveniently before large loss deductions draw scrutiny.
Losing on these factors isn’t only a tax problem. If a bankruptcy court recharacterizes the loan as a capital contribution, you lose creditor status entirely and cannot recover ahead of other creditors.
Writing the Promissory Note
The promissory note is the single most important piece of paper in the transaction. It has to include the principal amount, the interest rate, the repayment schedule (monthly, quarterly, or annual; principal-and-interest or interest-only for an initial period), the maturity date, and default provisions covering late fees, acceleration of the full balance, and the remedies you can pursue.
Interest has to be at least the Applicable Federal Rate 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).4Internal Revenue Service. Revenue Ruling 2026-6 These rates change monthly, so pull the current figure from the IRS’s AFR page when your loan closes.5Internal Revenue Service. Applicable Federal Rates (AFRs) Rulings
There’s a narrow exception. For compensation-related and corporate-shareholder loans, the below-market interest rules don’t apply on any day the total outstanding balance between the owner 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
Getting the LLC to Accept the Loan
A promissory note by itself 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 demand a supermajority vote; ignoring those provisions weakens the arrangement if it’s later challenged.
Hold a members’ or managers’ meeting, or execute a written consent if the operating agreement allows, and vote on the loan. Record the decision in the LLC’s official minutes with the loan amount, interest rate, repayment terms, and the vote tally. Keep the minutes in the permanent record.
When signing the note, sign once personally as the lender. A separate authorized representative of the LLC signs as the borrower. In a single-member LLC that has elected corporate taxation, the owner signs in both capacities but uses different signature blocks to make the dual roles clear. Move the money by check or wire from your personal bank account to the LLC’s business account. Don’t commingle, and don’t move it informally.
How the Interest Is Taxed
The interest the LLC pays you is taxable income on your personal return, whether or not the LLC issues a Form 1099-INT.7Internal Revenue Service. Topic No. 403, Interest Received The principal portion of each repayment isn’t income; it’s the return of your own money.
The LLC generally deducts the interest as a business expense.8Office of the Law Revision Counsel. 26 USC 163 – Interest Principal payments aren’t deductible. One limitation applies to businesses with average annual gross receipts above roughly $31 million over the prior three years, which caps how much business interest they can deduct in a given year. That threshold is inflation-adjusted, so most small and mid-sized LLCs sit well below it.9Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense
Form 1099-INT
If the LLC pays you at least $10 in interest during the year, it must file Form 1099-INT reporting that amount to both you and the IRS.10Internal Revenue Service. About Form 1099-INT, Interest Income Below $10, you still have to report the interest on your personal return.
Imputed Interest on Below-Market Loans
If the loan charges less than the AFR, the IRS treats the shortfall as “forgone interest.” Under the imputed interest rules, that phantom amount is deemed transferred from you to the LLC and then paid back to you as interest.11Office 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 the problem.
If the LLC Can’t Repay
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.12Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not? For LLCs taxed as partnerships, that income flows through to the members. For LLCs taxed as S corporations, it’s handled at the corporate level.
There’s an insolvency exception. If the LLC (or, for a partnership-taxed LLC, the individual member) is insolvent when the debt is canceled, the cancellation of debt income can be excluded up to the amount of insolvency. Insolvency means liabilities exceed the fair market value of assets, measured immediately before the discharge.13Office 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, such as the basis of assets, by the excluded amount.
In a formal bankruptcy, the stakes go beyond taxes. As an LLC owner you qualify as an “insider” under the Bankruptcy Code, and courts scrutinize owner loans far more aggressively than arms-length debts. A trustee can seek to equitably subordinate your claim, pushing you behind every other unsecured creditor. This happens most often where the LLC was undercapitalized and the owner used loan labels on what was really equity, or where the owner engaged in self-dealing that harmed other creditors.
How Bank Loans Change the Picture
If the LLC later borrows from a bank or other institutional lender, expect the outside lender to require a subordination agreement. That agreement pushes your loan behind the bank’s. Until the bank is fully repaid, you generally can’t collect payments, demand repayment, accelerate the balance, foreclose on collateral, or sue the LLC to enforce the debt.
This isn’t optional. Banks treat owner loans as a threat to their security because the owner could drain cash to repay themselves ahead of the bank. If you expect to seek outside financing later, plan for the subordination agreement to freeze repayment of your loan for years.
Securing the Loan with Collateral
You can secure the loan with LLC assets to gain a priority claim on specific property in a default. That requires a security agreement between you (as lender) and the LLC (as borrower), plus a public filing that puts other creditors on notice.
The public notice is a UCC-1 financing statement, filed with the secretary of state in the state where the LLC is organized. Use the LLC’s exact legal name from its formation documents. A UCC-1 is effective for five years and needs a continuation statement filed within six months before it lapses. Filing fees vary by state, roughly $10 to $100.
Securing the loan does add legitimacy because it mirrors what an unrelated lender would do. Keep the subordination point in mind though: if the LLC later takes a bank loan, the bank will almost certainly require you to subordinate both the debt and any lien on the LLC’s assets. A secured position that looks strong on paper can be wiped out by a single subordination agreement.