Loans Between Businesses and Business Partners

Documenting and enforcing a commercial promissory note

California Bar #279869

When the Borrower Is a Related Business or a Business Partner

Some of the hardest commercial notes to enforce are between parties who know each other: an affiliated company, a supplier or customer your business financed, a founder or LLC member who advanced money to the company, or a shareholder loan. The paperwork is often thin because the relationship was close, and the borrower now says it will "get to it," or that the money was never a loan at all.

These disputes are legally straightforward when the loan is documented, and a demand on my letterhead helps build that record even after the fact. Personal, family or household loans between individuals are outside my practice.

Debt or Equity? How a Business Advance Gets Characterized

When money moves between related businesses, or from an owner into the company, the borrower (or its other owners) often argues the advance was a capital contribution, not a loan. This matters for two reasons:

Collection: If it's equity, there is no fixed repayment obligation to enforce
Tax deduction: If it's equity, there is no IRC §166 business bad debt deduction, because an equity investment isn't a debt

Without documentation, the lender may lose twice: no enforceable repayment obligation AND no bad debt deduction for the loss.

How I Document That a Business Advance Was a Loan

Even without a formal loan package, I can build the record that the advance was debt:

Evidence Type	What It Proves
A signed note or loan agreement	Principal, interest, maturity, and repayment terms in writing
Board, manager, or member approval	The borrowing was authorized as a loan
Balance sheet treatment	Booked as a loan payable, not as paid-in capital
Interest or principal payments	The borrower treated the advance as debt
Emails acknowledging the balance	"We'll pay down the note next quarter" = acknowledgment of debt
Response to the demand	If the borrowing business doesn't dispute the debt, that is evidence it is owed

The demand letter itself is evidence. If I send a demand and the borrowing business responds by asking for more time or a payment schedule, it has acknowledged the debt. If it says nothing, the unrebutted demand supports a loan characterization.

Illustrative Scenarios

These are hypotheticals that show how the documents matter. They are not descriptions of past matters, and no outcome is guaranteed.

Vendor-Financing Note Between Two LLCs: A supplier finances a business customer's equipment order under a short note with a one-year repayment term. The maturity date passes with only partial payments. A demand on attorney letterhead attaching the note and a payment ledger puts the default on the record, and a borrowing company that wants to keep operating often answers with a repayment proposal that can become a written workout agreement.

Member Loan to a Failed LLC → Business Bad Debt: A member lends money to an LLC under a written note and the company later fails. A demand establishes the collection effort, and the IRC §166 business bad debt documentation for the member's CPA builds on it. Without a demand on the record, the advance is easier to recharacterize as equity.

Scope of my practiceI do not take creditor-side consumer-debt collection matters or personal, family or household loan collections. Business-to-business invoices, commercial contracts and payment-platform disputes are what I handle. Regulated consumer collection matters belong with licensed collection counsel, and I can refer you.

Want me to write it and send it?

I take a business or commercial dispute and write the demand myself, on my letterhead, then handle delivery and read the response you get back.

Request the attorney demand engagement, starting at $2,500

After a conflict check, I draft the demand on my letterhead, prepare the supporting chronology and damages figure, send it by certified mail and email, and review the first substantive response. Sergei Tokmakov, California Bar #279869.

Your Business Lent Money and the Borrower Won't Pay?

I'll send the demand on my letterhead, negotiate a workout, or document the business bad debt for your CPA.

Email owner@terms.law