Tax results follow the facts
In a genuine borrowing, interest may be an expense of the borrowing business and interest received is generally income to the recipient. But the result depends on entity type, accounting method, related-party rules, business-interest limitations, and state law. Principal and interest are not the same thing: repayment of borrowed principal is generally treated differently from interest.
Make debt look and behave like debt
A more defensible debtor-creditor relationship has an executed note, enforceable payment obligation, commercially supportable rate, maturity date, actual payment behavior, and records showing funds were loaned rather than contributed or gifted. Related parties should use even more rigorous approvals, documentation, and independent advice.
Avoid tax promises
A deduction does not make interest free; it changes taxable income subject to applicable rules. The business still needs cash to pay interest and its taxes, and the recipient may recognize interest income. Discuss Section 163(j), original issue discount, withholding, related-party timing, and state treatment with a qualified tax professional before describing after-tax economics.