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The Downside of Paying? Off Your Commercial Loan? Early?

 March 11, 2014

Choosing Pay Off vs. Increasing the Value of Business

Many business owners are anxious to pay off their loans early. However, if your loan terms are very favorable, such as having a fixed low interest rate over a long term like an SBA 504 loan, keeping your loan and investing that money elsewhere for Repairs, Maintenance, Added Inventory, or Expansion may be a better financial decision. Keeping your loan intact can increase the value of your business and can possibly increase your income.


Increases Your Tax Load

Interest expense is deductible.  Profits are not.  When you pay off your business loan early, you increase you tax liability because you have more net profit. You may be better off using that money to grow your investment and use the interest you are paying to lower your tax burden. As always, with any tax advice, consult a tax professional to see what is best for your situation.