For many business owners, applying for a loan can feel intimidating. The documentation, the financial review, the sense of being evaluated—it can all feel personal. Lenders are not judging decisions; they are measuring risk. Their focus is simple: does the business generate enough consistent cash flow to repay the loan?
This is where tax strategy and access to capital begin to collide.
Business owners are often advised to minimize taxes through deductions and write-offs. While this reduces tax liability, it also lowers the income reported on financial statements—the same statements lenders rely on to assess repayment ability. In trying to save on taxes, a business can unintentionally weaken its position when seeking financing.
An owner has $100,000 in net profits and purchases a $60,000 truck for operations. Under Section 179, the business can expense the full amount in one year, reducing reported income to $40,000. Lowers taxes but also presents a much smaller income figure to lenders.
From a lending perspective, this matters. Financial institutions use metrics such as the Debt Service Coverage Ratio (DSCR) to evaluate whether a business can comfortably meet loan obligations. Lower reported income leads to a lower DSCR, increasing perceived risk. The result can be reduced loan eligibility, smaller loan amounts or less favorable terms — even if the business is performing well.
An alternative approach is to depreciate the asset over time. Instead of expensing $60,000 at once, the business might deduct $12,000 per year over five years. This keeps reported income closer to $88,000, presenting a stronger and more stable picture.
Consistency is key. Lenders typically review multiple years of financials, and stable earnings are viewed more favorably than fluctuating results.
Ultimately, write-offs are not inherently good or bad—they are strategic tools. The real question is alignment. If the goal is short-term tax savings, aggressive deductions may make sense. If the goal is access to capital and growth, stronger reported income may be more valuable.
The smartest businesses don’t just reduce taxes—they position themselves for opportunity. For more, check out our LinkedIn!
Pedro Soto is the Bronx Economic Development Corporation’s senior underwriter.
