Turning Business Strength Into Owner Opportunity
Smart Cash Management for S‑Corps, LLCs, and Partnerships
Running a business often means juggling cash flow needs with long‑term growth. Sometimes owners need access to funds for personal reasons—a home deposit, tuition, or simply smoothing out seasonal expenses. The good news is that if you’re structured as an S‑Corp, LLC, or Partnership, you don’t always have to turn to the bank. You can borrow from your own equity, and when it’s done right, it can be one of the smartest financial strategies available.
At Avari Tax & Financial Services, we’ve built a framework that helps owners and professional firms structure these transactions so they’re compliant, documented, and financially beneficial.
Distributions vs. Loans: Knowing the Difference
When money moves from the business to the owner, the IRS cares about how it’s classified. A distribution reduces equity and isn’t subject to payroll taxes, but it can’t exceed the owner’s basis without creating taxable income. A loan, on the other hand, creates debt basis—but only if it looks and acts like a real loan. That means a promissory note, interest charged at or above the IRS Applicable Federal Rate, and a repayment schedule that’s actually followed.
This distinction matters because if the IRS decides your “loan” is really just a disguised distribution, you could face penalties and reclassification. That’s why documentation and consistency are key.
The $25,000 Threshold
We often talk about a $25,000 threshold—not because owners shouldn’t borrow less than that, but because it’s a practical dividing line for how we advise. Smaller withdrawals can often be handled as distributions or simple loans with streamlined documentation. Larger amounts, though, deserve full structuring with notes, interest, and repayment schedules.
This approach keeps things simple for smaller needs while ensuring bigger transactions are bulletproof in the eyes of the IRS.
A Real‑World Example
Let’s say an S‑Corp owner needs $100,000 for a home deposit. Instead of going to a bank charging 6% interest, the owner borrows from their business. The loan is documented with a promissory note, interest set at the IRS rate, and a repayment plan spread over three years.
Here’s the impact:
At 6% interest, a $100,000 loan over three years would cost nearly $9,500 in interest to a bank.
By borrowing from the business, that interest is paid back into the company instead of to a lender.
The owner gets liquidity at a lower effective cost, while the business earns interest income and strengthens its cash position.
It’s a win‑win. The owner saves thousands, and the company benefits from the interest earned.
Why This Matters for Firms and Advisors
Bookkeeping firms, CPAs, and law practices often see clients struggling with how to handle owner withdrawals. By helping them structure loans properly, you not only protect them from IRS scrutiny but also show them how to turn their business equity into a financial advantage. It’s a service that builds trust and deepens relationships.
Bringing It All Together
Borrowing from equity isn’t just about compliance—it’s about strategy. With the right structure, owners can access significant funds, avoid high bank interest rates, and pay themselves back through their own company. Whether you’re an S‑Corp, LLC, or Partnership, the rules are clear: document everything, respect basis limits, and treat loans like real loans.
At Avari Tax & Financial Services, we specialize in helping owners and professional firms design policies—like the $25,000 threshold—that simplify decisions, protect compliance, and maximize financial benefits.
Take Action Today
Don’t let complexity or fear keep you from using these strategies. With the right guidance, borrowing from equity can save thousands in interest while strengthening your business.
👉 Contact Avari Tax & Financial Services today to learn how to structure owner loans and distributions the right way. Use the contact bottom above or on our home page to request a consultation and receive a customized policy template for your business.
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Borrowing From Your Equity
Turning Business Strength Into Owner Opportunity Smart Cash Management for S‑Corps, LLCs, and Partnerships
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