It is not unusual for business owners to give money to their businesses – as start up funds or during the course of business. Regardless of when and how the money is given, there are 2 different ways this funds can be viewed. An owner’s investment in a company can either be an investment or a loan.
- Owner Loan: If you give your business some money and expect to get the money back from the business, then it is a loan. It is just like a regular loan – except for the fact that its coming from you and you probably won’t charge your business as much interest as a bank would charge your business.
- Owner Investment: This is when you place money in the business and it goes into an equity account. This is your equity or personal stake in the business. Its just like a regular investment – except you are not getting interest. Investing money in a business increases your equity in the business.
The major difference between owner loan and owner investment is that the first one makes you a creditor of the business and the second one makes you equity holder in the business.