Borrowing money from family or friends for your business
Do you want to borrow money for your business from family or friends? This is known as a private loan. Set out the terms regarding the amount, interest, and repayment in a contract. Without proper commercial terms, the Netherlands Tax Administration (Belastingdienst) may consider the loan a gift. You may then have to pay gift tax.
On this page
- Can you borrow money from family or friends for your business?
- How private loans from family and friends work
- Why do you need to pay interest on a private loan?
- Set out the terms: what needs to be included in a loan agreement?
- Family loans in your business accounts and income tax
- Checklist: borrowing money from family or friends for your business
- Other frequently asked questions
Can you borrow money from family or friends for your business?
Yes, you can. It is one way to finance your business, for example, when starting out. However, the Tax Administration does expect the loan to be for business purposes. This means you must set out clear terms in a contract.
The terms and conditions must be similar to those usually applied by banks. For example, terms relating to the interest you pay and the deadline for repaying the loan.
How private loans from family and friends work
A loan from family or friends is known as a ‘family loan’ or ‘private loan’. This is a loan between private individuals, without the involvement of a bank or other type of lender.
With a private loan:
- you make your own arrangements with the lender
- you pay approximately the same interest as you would with a bank
- you set out the arrangements in a loan agreement
- you record the loan in your business accounts
- the loan is generally not registered with Bureau Krediet Registratie (BKR)
The Tax Administration applies the same rules to family loans as to other business loans.
Why do you need to pay interest on a private loan?
If you borrow money interest-free or at a very low interest rate, the Tax Administration may regard this as a gift. A gift is something you receive and do not have to pay back. Different rules apply to gifts. If you receive money from family or friends, you will have to pay tax on it if it exceeds a certain amount. This is known as gift tax.
How much interest must you pay if you borrow from family or friends?
The interest must be in line with market rates. This means that the interest on a private loan or family loan must be similar to the interest rate that an independent lender would charge in the same circumstances.
Download examples of family loans and interest rates in Dutch from the Tax Administration
Gift tax: how much money can you receive tax-free?
Giving money to family or friends is tax-free up to a certain amount. The tax-free allowances are updated regularly.
Read more about gifts and gift tax on the Tax Administration’s website in Dutch.
Set out the terms: what needs to be included in a loan agreement?
You should set out all the terms in a written loan agreement and keep it in your business records. The agreement must, at the very least, include:
- your name, company details, and the name of the lender
- the amount you are borrowing and the interest rate
- agreements on how and when you will repay the loan and interest
- the term (the length of time for which you are borrowing the money)
- what happens if you are unable to make repayments
- what happens if the lender wants to end the loan early
- what happens if you want to repay the loan earlier
- whether you are allowed to borrow money from elsewhere during the loan period
This ensures that it is clear to everyone that this is a loan and what the terms and conditions are.
Use a notary to record the details
You can write and sign a loan agreement together. Or you can ask a notary to record the details. A notarised deed provides additional evidence that the arrangement is a loan. There are extra costs when using a civil-law notary, but such a record also gives extra security.
Family loans in your business accounts and income tax
You should record the loan as a liability in your business accounts, just like any other business loan. The loan itself and your repayments are not deductible expenses. However, the interest you pay on a family business loan is included in your business expenses.
These costs reduce your profit, which means you will pay less income tax.
Checklist: borrowing money from family or friends for your business
If you plan to borrow money from family or friends for your business, make sure you:
- set out the terms in writing
- agree on interest and repayment
- use commercial terms
- record the loan in your accounts
- check the tax rules relating to gifts and loans
Other frequently asked questions
With a loan, you repay the money. With a gift, you do not. A loan involves clear agreements on repayment and often includes interest. With a gift, you receive the money and do not have to repay it.
You do not pay tax on the amount borrowed. The loan itself is not a tax-deductible cost.
However, the interest you pay on a business loan is deductible for income tax or corporation tax purposes.
No. You do not need to report or register a private loan. A family loan is also not registered with the Bureau Krediet Registratie (BKR). You do, however, need to set out the terms in a contract and record the loan in your business accounts.
No. The Tax Administration applies the same rules regardless of whether you borrow from parents, other family members, or friends. The loan terms must be on commercial terms.
Are you borrowing money for your business from a tax partner, such as a spouse? In that case, the Tax Administration treats this as 'making assets available'. Your tax partner must report any income from the arrangement in box 1 of their income tax return.
It is possible. A loan can affect your financial position and may have consequences for certain benefits. This depends on your personal circumstances.