If you’re running a small business, borrowing money is often part of keeping things moving.

Around half of UK SMEs use some form of external finance, according to the British Business Bank. It’s commonly used to manage cash flow, cover gaps, or invest in growth.

But one question comes up again and again.

Can you claim a business loan on tax?

The short answer is no, but some of the costs linked to it can be.

Here’s how it works.

The short answer

You can’t claim the loan itself as a business expense.

If you borrow £10,000, that amount is not deducted from your taxable profits.

That’s because a loan isn’t a cost. It’s money you borrow and repay.

So even if the loan is used for your business, the borrowing itself doesn’t reduce your tax bill.

But some of the costs linked to borrowing can still matter.

What you can usually claim

In most cases, you can claim the interest you pay on a business loan.

You can usually treat this as a business cost, as long as the loan is used for business purposes.

This can reduce your taxable profit.

You may also be able to claim certain arrangement fees, depending on how the finance is set up.

HMRC generally allows relief on costs that are “wholly and exclusively” for business use. Interest usually falls into this category.

So while you still repay the full loan, some of the cost of borrowing can reduce your tax bill.

A simple way to think about it

It helps to split the loan into two parts.

The money you borrow is not taxable and not deductible.

The cost of borrowing, like interest, is where tax relief may apply.

So the tax system isn’t rewarding the loan itself. It’s recognising the cost of having that finance in place.

A simple example

Let’s say your business takes out a loan to help manage a quieter trading period.

Over the year, you pay £1,200 in interest.

That £1,200 may reduce your taxable profit, depending on your structure and how the loan is used.

But the original loan amount doesn’t appear in your tax calculation at all.

So the repayment and the tax treatment are separate things.

A common misunderstanding

Many business owners assume that if a loan is used for the business, the full amount can be set against tax.

That’s not how it works.

Only certain costs linked to borrowing are eligible for relief.

This is where confusion often happens, especially when cash flow is tight and decisions are being made quickly.

Capital vs running costs

It also depends on what the loan is used for.

If it covers day-to-day trading costs, the interest is usually treated as a normal business expense.

If it’s used to buy equipment or assets, you still can’t deduct the loan itself. Instead, you may be able to claim capital allowances on the asset over time.

The key point is that tax treatment follows how the money is used, not just the fact that you borrowed it.

What can change the tax treatment

Not all loans are treated in exactly the same way.

It can depend on whether you are a sole trader or a limited company, how the loan is structured, and what it is used for.

Even small differences in setup can affect how costs are recorded in your accounts.

That’s why similar businesses can sometimes see slightly different outcomes.

What to think about before you borrow

It’s easy to focus on the monthly repayment when you’re comparing finance options.

But the full picture is wider than that.

You need to think about the total cost of borrowing, what you can claim back, and how repayments will affect your cash flow over time.

Late payments remain a common issue for SMEs, and cash flow pressure is one of the main reasons businesses use loans in the first place.

Getting clear on the tax treatment early can help you make a more informed decision before you commit.