There is no such thing as a personal loan used for business. It's a business loan, and if the proceeds are used for business, the interest on that loan is deductible as a business expense.
At best for a personal loan, you might take out a personal loan to start a business, and those costs (including the interest paid on the loan up until the business actually opened) would be start up expenses - which are totally different from business expenses. Generally, one takes out a personal loan to start a business when the not-yet-established business would obviously not qualify for any other type of loan.
But rental property, which is reported on SCH E, is not in any way, form or fashion, anywhere like your "normal" business that is reported on SCH C. For one thing, start up expenses are flat out not allowed with SCH E rental property. Period.
Your line of thinking just doesn't cut it. Even if you used the proceeds from refinancing your primary residence to pay cash for a rental property, (which is basically what you did in this case) the loan is not secured by that rental property which was "paid in full" with the proceeds from the refi on your primary residence. In other words, the rental property itself is not "at risk" of foreclosure, should you default on the loan. Only your primary residence is at risk; and that's not business property any way you look at it.
