Showing posts from March, 2019

Importance of Documenting Loans

One issue that comes up more than it should is whether loans are properly documented.  Oftentimes a business lends money to its owners, or borrows money from its owners, without any note or even a memo documenting the loan!  This is not good.  When the auditors show up, oftentimes a transaction that nobody thought was taxable suddenly can be viewed as a dividend, or as additional payroll. 

It is very important when lending money from a company, or to a company (or really, whenever lending money), to document the term of the loan, the interest rate, a payment schedule, remedies for non-payment, etc.  While a carefully drafted loan agreement is ideal, even a short note that A lent B $X amount of money for Y years at Z interest rate is better than nothing. 

Another thing to consider is state lending rules, sometimes a loan that nobody thinks is a problem runs afoul of some state lending rule, and may even require that the lender register with the state before they can issue the loan.