[Updated August 2026]
Getting financing for a company is not always an easy task. Banks constantly tighten the criteria for granting loans. In fact, if you’ve already requested a loan for your business, you may have noticed that to get financing, you almost have to show that you don’t need it — which is a bit paradoxical, isn’t it?
To avoid a situation that puts your company’s stability and growth at risk, here are some tips to help you prevent harmful financing decisions.
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Avoid credit through business associates
There’s no more damaging financing than when the business partners request the financing personally instead of the company doing so. This is usually used when the company is heavily in debt and the bank doesn’t want to take on the risk directly. From a tax point of view, though, it’s not the right solution — here’s why.
When this measure is taken, the process usually looks like this:
- One of the partners — the most solvent one — personally requests the loan the company needs and lends the money to the company.
- That partner becomes a financial creditor of the company.
- Each month, the company pays the partner the loan instalment amount (capital plus interest) so the partner can make the corresponding payment on their personal credit.
- The partner has to declare the interest received as income. However, the interest the partner pays personally for the financing is not a deductible expense for personal income tax purposes.
So the partner ends up taxed on interest income they can’t offset with a deduction. From a tax standpoint, it’s almost always better to have the company apply for financing directly, rather than routing it through a partner’s personal credit.
In credit lines, use at least half of the requested amount
If you obtain a credit line, keep in mind that if you don’t use at least half of the amount you requested, the bank may put up obstacles when it’s time to renew it.
For example, if you want to renew the line, the bank could reduce the limit — something that wouldn’t have happened if you’d used the full amount.
So if you see that you’re not going to use much of the line for the moment, you can route payments to suppliers or payroll through that account. You’ll pay a bit more in interest for holding more capital, but the bank won’t restrict your limit later due to lack of use, making renewal easier.
See the bank as your most important partner
The bank is the best credit partner any company can have. It has the money your company needs and doesn’t want equity in your business in return — that’s a real advantage.
That said, you need to understand what matters most to a bank when approving a loan. You need a clear, realistic business plan that shows exactly how you’ll use the money.
The main partners also need a solid credit history, which signals sound money management. And be ready for the bank to ask detailed questions about your business model — the more open and thorough you are, the smoother the process tends to go.
FAQs on what is damaging financing for your business
Is a personal loan from a partner ever a good idea?
It can solve a short-term cash need, but it’s rarely efficient from a tax perspective. In most cases, applying for financing directly through the company — including options like ICO-backed loans — is more efficient.
What if my company can’t get bank financing at all?
Public financing lines, such as ICO loans, are worth exploring before resorting to partner loans, since they don’t carry the same personal tax drawbacks.
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