Difference between Owner Investment and Owner Loan

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┬ácompany┬ácan 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.

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About Chizoba Morah 119 Articles
Accountant, bookkeeper, tax planner! I have an MBA and have been involved in Accounting and tax preparation for over 10 years. My clients include individuals, businesses of all forms (including corporations) and sizes small to large).


      • How should I declare taxes both personal and business when I make a owner’s loan and a owner’s investment to avoid any confusion with the IRS?

        • With your business, an owner’s loan is not income, so it is not reported as such. In other words, there are no tax implications for investing money in your company. It simply increases the business assets and not the income – what the IRS is concerned with is the income. Now, say you invest $500 in your business and the business spends it on supplies, you can deduct that $500 for supplies on the business return (schedule c, k1, 1120 or 1220s – depending on the structure of your business). Does that clear it up a bit?

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