Loaning money between 2 business

[reidkelly]

So, I own two businesses. They are totally unrelated industries. One I just started a few weeks ago and the other a few years ago. I'd like to loan money from company A to company B to get it up and running. In fact, I've already done so. At the moment it's a loan/influx of 24k. What is the next step with regard to staying compliant with the tax man? FYI: the one loaning the money is an S-Corp and the other is an LLC. Thank you!

 

[ArcSine]

Treat it in all respects as if it was an arm's-length transaction between two unrelated parties, and you should be fine.

A loan between two unaffiliated parties would have an underlying business purpose (such as an investment of start-up funds for a new venture); it would bear interest at a commercially reasonable rate, considering all the circumstances and risk factors; the repayment schedule and terms would be commercially reasonable; proper documentation would be drawn up; the arrangement would be documented in the corporate minutes of both borrower and lender.

You should have the same flexibility to custom-tailor the loan terms to craft an arrangement that best fits the particular fact-set involved. Not every loan, for example, is level-payment and 5-year maturity. Just don't stray far from terms you'd reasonably expect to find in a small, private loan transaction to a start-up venture.

Good luck with the new biz.