From my interpretation of IRS Publication 535 Chapter 4 (https://www.irs.gov/pub/irs-pdf/p535.pdf) that portion of the loan used for business purposes can be treated as business use. The publication covers both passive and non-passive investment use. (passive applies to rental property) However, tracing rules apply in order for the interest on those funds used for the rental property to be deductible on the SCH E.
