Charges that are applied to money borrowed is referred to as Interest. This is usually calculated by percentage over a period of time.

Interest can also be charged as a ‘late fee‘ for not paying on time.

In contrast, interest can be an income from money held by another entity. It could be received from banks, savings and investments for example.

When borrowing funds it is essential to be aware of the interest charges.

Is it a variable interest rate, will it increase over time or is it fixed? Will the charges reduce if the loan is paid off before the term?

An interest expense is an allowable expense. The loan repayments are not.

It is important to calculate the interest payments each year, so this can be deducted from business income.

A loan provider will likely provide a breakdown of the amount repaid and interest charged over a given period.

A bookkeeper or an accountant can help business owners to assess their allowable expenses, to make sure all are accounted for.


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