The good news is that the answer to the question “are SBA loans taxable income?” is a resounding “no.” If anything, SBA loans may benefit your business come tax time. Read on to learn more about how.

How do SBA loans affect taxes?

The interest you pay on your SBA loan may be partially or fully tax-deductible. If so, your SBA loans will typically affect your business taxes positively – by lowering them.

Additionally, some purchases you make with your SBA loan proceeds may be tax-deductible. These may be purchases you couldn’t have afforded without your loan. They include things like equipment, machinery, advertising dues, office supplies, and professional membership dues.

When is your business loan interest tax-deductible?

You can generally deduct your interest payments on your small business loan if:

• You are the person who is legally liable for repaying the loan
• You have signed a loan agreement with the lender
• Your relationship with your lender is a debtor-creditor relationship

You generally cannot deduct your interest payments if:

• You’re paying capitalized interest
• You’re repaying a debt refinancing loan used to pay off a prior loan
• Your loan, or the property it covers, is assumed from a prior debtor or owner

Are SBA loans taxable?

SBA loans themselves are not taxable as income. This means that your loan amount typically has no impact on your taxes.

One exception exists: If your loan is forgiven, the forgiven amount is added to your business income and taxed accordingly. However, forgiveness amounts on SBA Economic Injury Disaster Loans (EIDL) for COVID-19 relief, as well as Paycheck Protection Program (PPP) loans , are typically not taxed on a federal level. That said, some states may still tax your forgiveness amount as business income and bar you from deducting expenses paid for via EIDL loans.

Types of SBA loans and their tax requirements

In most cases, you may deduct your interest payments on all types of SBA loans. Here are five types of SBA loans that business owners commonly use.

• SBA 7(a) loans . Many small business finance experts say that SBA 7(a) loans should be a small business owner’s top pick. Their low interest rates, long repayment terms, and high loan amounts may minimize your loan expenses. You can use them for working capital and debt refinancing, making them highly versatile funding sources.
• SBA Express loans . SBA Express loans are basically SBA 7(a) loans on an accelerated timeline. Your lender will typically approve or deny your application within 36 hours, much faster than with SBA 7(a) loans.
• SBA microloans . With SBA microloans, you may be able to get government-backed loans of up to $50,000. Typically, though, your loan amount will be closer to $13,000. You may use them for working capital or to buy furniture, supplies, or fixtures.
• SBA CAPLines . The SBA CAPLines program is designed for contractors and subcontractors as well as home builders and construction contractors. Seasonal businesses and businesses with inventory or accounts receivable may also use SBA CAPLines loans, which can be revolving or installment loans.
• SBA 504 loans . With SBA 504 loans, a lender will typically lend you 50 percent of your project costs. Alongside that, a local community development corporation (CDC) will lend you 40 percent. You’ll generally need to make a down payment for the remaining 10 percent. You’ll then repay the CDC and bank loans over time.