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Financing OMBs: loans or shares?

Paul Howard sets out the tax consequences for the different methods of finance

Paul HowardOwner managed businesses (OMBs) can struggle to raise finance even when they have a viable business plan.

However there are various sources of funds that are open to small and medium-sized businesses and the purpose of this article is to concentrate on funding by loans and share capital and in particular to consider the tax treatment both for the business and for the provider of funds on the basis that all parties are based in the UK.

Loans

Many OMBs are funded by a combination of the proprietor’s own resources and bank borrowings often secured on the proprietor’s personal assets.

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