How do I record the payments SBA is making on an EXISTING loan (NOT one of the new disaster or PPP loans)

Thanks for posting in the Community space, @Hosey.

I'm here to help share information on how to record the loan payments in QuickBooks.

If you haven't set up a liability account to record the loan, here's how:

1. Go to the Gear icon then select Chart of Accounts.
2. Select New to create a new account.
3. Set the Account Type to Other Current Liabilities or Long Term Liabilities depending on the type of your loan.
4. Choose Notes Payable as Detail Type.
5. Enter the name of the loan.
6. Click Save and Close.

Once done, record your loan by creating a journal entry. Here's how:

1. Go to +New, then Journal entry.
2. On the first line, select the liability account under the Account column. Enter the loan amount in the Credits column.
3. On the second line, choose the asset account or the appropriate account. Enter the loan amount in the Debits column.
4. Click Save and close.

After that, record your loan payment by creating an expense or a check.

1. Go to the + New icon.
2. Select Check under Vendor.
3. If you send an actual check, enter the check number. If you pay online, use direct withdrawal, or EFT, enter Debit or EF" in the Check/Cheque # field.
4. Enter the following information in the Category Details section.
   1. First line: Liability account for the loan and the amount of payment.
   2. Second Line: Expense account for the interest and the amount.
   3. Additional lines: Any additional fees along with the appropriate accounts.
5. Select Save and close.

See this article for reference: Record a Loan and Its Payment.

I've also added our Employees and payroll taxes page. It provides help article that might help you navigate your account and answer your How do I question in QuickBooks.

Let me know if there's anything else at all I can do for you. Take care.

This answer takes cash off the balance sheet though right? In reality the SBA is making these payments on a business's behalf so is this answer correct?

Thanks for joining this conversation, @MJ33.

Since the SBA is making payments on a business's behalf, you can deposit the payment in the liability account instead of creating a journal entry. Then, use it to pay the loan in QuickBooks Online (QBO). This way, the only amount that will be deducted from the account is the one you've deposited.

Here's how to deposit the payment:

1. In QBO, go the + New option at the top left to get to the Bank deposit.
2. Proceed to the Add funds to this deposit section.
3. Enter the necessary information, then hit Save and close to complete.

To learn more about the process, consider checking out this article: Record and make Bank Deposits in QuickBooks Online.

Just in case, I'll add this article for future reference: Set up a loan in QuickBooks Online.

Please leave a comment in this thread if you have any other questions or concerns. I'm more than willing to help. Have a great day!

So you are saying make a fictitious deposit into the bank account that handles your SBA loan and then apply that fictitious deposit to the SBA Loan liability account?

I am looking to resolve the same question. Has this been resolved or has the thread just dies?

I am also looking for this information.  The liability for the note was created when we received the original loan several years ago.  I am just looking for information on how to account for the payments being made on our behalf to the bank for the six month period under the CARES Act.  Is this considered income?  Your advice to create a fictitious deposit  doesn't seem to solve the problem.

I have the same question.

Hello !

This response seems incorrect.  The question was "how do we record FREE money received from the Government to pay for our SBA 7A loan under the cares Act?"  Your answer covers a LOAN.  We didn't get a loan,  we already have a loan. The government is making 6 months of payments toward our loan.  At this point, I'm not sure if this will be taxable income or not, but it seems to me that we need some sort of an income account and then take payments from there.  Please advise ASAP.

Thanks

Honestly,  can someone answer this question accurately?  Our principal and interest are being paid by the SBA for a period of six months.  How do we enter this to reduce our principal on the loan?  Is there some kind of adjustment how do we accurately record how these payments were made?

Has anyone figured this out yet? I am in the same situation and need to know how to record payments made by the SBA on a loan of a client.

Allow me to step and help you record payments made by SBA on a loan of a client, kmckeesvs.

You can create an asset account to track the payment you receive. Then, enter a journal entry using the asset account to reduce your loan.

Upon sharing this solution, I still suggest consulting with your accountant to ensure you have accurate records on your register. Also, he/she can provide instructions on what accounts to debit or credit on the journal entry.

Stay in touch with me by commenting below. I'm always right here whenever you need additional information about recording the payment made by SBA.

But we do not receive payment. It gets paid directly to the loan, thereby decreasing my loan amount without decreasing any balances within any accounts that we have.

How about this for a journal entry?

Debit - Clearing Account 

Credit - Cares Act 1112 Income Acct.

Debit - SBA 504 Liability Account

Credit - Clearing Account

You are essentially receiving the money.  Create an income account named "loan forgiveness income".  Then do a journal entry to "pay" the loan down with these funds.

This assumes that we will have to show this as taxable income, which I have not yet researched, but I'm assuming that's the way it's going to go.

Our statements show the SBA is also paying the interest.

I follow on the principal portion of the loan:

  7a Loan (Dr)

           Cares Act 1112 Other Income (Cr) 

But what do I do with the interest? Doesn't seem correct to recognize as an expense, but I suppose I could and just offset it with the Cares Act 1112 Income account?

Suggestions?

I am also having the same issue and looking for a clear explanation.  Anyone out there with a valid response, please reply.

Hello All, I recommend opening a new account: 

•  + New ->Other Income Account-> Detail Type (Other Miscellaneous Income)->SBA Loan Payments (Non-Taxable).

• Add a JE and Debit (Loan thus payments went to) and Credit the (SBA Loan Payment (Non-Taxable)) account.

Loan Balance after the JE:

I hope this resolves your question.

Thank You,

I would say that if the IRS does not treat the SBA payments as debt forgiveness type taxable income, the proper accounting treatment should be for the principal payments made by the SBA

Debit Loan Payable

Credit Paid in Capital

For the interest component, I would say no accounting entries since the client never paid the interest (the SBA did) and I assume the IRS will not allow an interest deduction for amounts not offset by debt forgiveness income.  But I don’t think the IRS has issued definitive guidance on this topic yet.

I received the following from my auditor:

Normal debt payment is:

Debit Loan Principal

Debit Interest Expense

              Credit Cash

Consider you made this entry as you normally do however your credit is held in an accrued liability account instead of cash. Since this was paid for you, you would move this accrued liability credit balance down to other income.

The interest is essentially a wash but since it was paid on your behalf and is forgiven, you would should the gross position.

Correct entry is:

Debit accrued liability

Debit interest expense

              Credit other income

I am looking into this as well and will be asking my tax advisor - whom is a CPA as well as an attorney - next month. 

Like everyone has said, difficult to decide where to record since we do not have a decision by IRS on how to treat this. However creating an account that tracks the principal amount paid by SBA is best. And then can inform your accountant/bookkeeper of this account when it comes times for taxes. 

The correct answer is that you record a credit to Other Income for the amount of the payment being made by SBA, you debit interest expense for the interest amount of the payment, and debit your SBA long-term liability account for the principal amount of the payment. You do this for all 6 payments that were made by SBA. You should create a general journal entry to do this.

as to the question on whether the 6 months of payments that are being paid by SBA is taxable income, please consult with your tax advisor who is knowledgeable about the CARES act

Hi All!  I created contra accounts for the loan on the BS and the interest on the PL.  The contra accounts are sub accounts.  Then I'm making a journal entry to record the SBA payments.  the CPA may move the contra principal to the P&L I'm going to ask in the AM.

I respectfully disagree - I think. To clarify - my example is a pre-existing SBA loan, nothing related to the CARES ACT.