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How to Record a Business Loan in QuickBooks Online

When your business takes on a loan, you need to record both the incoming deposit and the liability. If you categorize it as income, your books will be wrong. Here's how to do it correctly.

When your business takes on a loan, you need to record both the lump-sum deposit (the money coming in) and the liability (the obligation to repay it). If you just categorize the deposit as income, your books will be wrong — you'll overstate your revenue and miss the liability entirely.


What You'll Need

  • Access to QuickBooks Online
  • The loan amount, interest rate, and repayment schedule
  • The loan account set up in your Chart of Accounts (your Mesa CPA bookkeeper will add it if not already there)

Normal Procedure

Step 1: Record the Loan Proceeds

When the lump sum arrives in your bank account:

  1. Go to Transactions > Bank transactions and find the deposit in the For review tab.
  2. Click on the transaction.
  3. In the Category field, select the loan liability account (e.g., "Business Loan – [Lender Name]"). Do not categorize it as income.
  4. Save.

This records the cash arriving in your bank account while creating a corresponding liability — you owe the money back.


Step 2: Record Each Loan Payment

Each repayment is split into two parts:

  • Principal: Reduces the loan balance (reduces the liability on the Balance Sheet)
  • Interest: A deductible business expense (goes to the P&L)

Your bank statement or loan agreement shows the principal/interest split for each payment. If you're not sure of the breakdown, your lender can provide an amortization schedule.


Recording a loan payment in QBO:

  1. Go to + New > Expense (or find the payment in your bank feed).
  2. Add two line items: Line 1: Select the Loan liability account and enter the principal portion. Line 2: Select Interest Expense and enter the interest portion.
  3. Confirm the total equals the actual payment amount.
  4. Save.

Abnormal Procedures

You don't have an amortization schedule and don't know the principal/interest split.

Request one from your lender — they're required to provide it. In the interim, your Mesa CPA bookkeeper may estimate based on the loan terms, but this will need to be corrected when the schedule is received.


The loan was used for both business and personal purposes.

Only the business portion is a business liability and eligible for interest deduction. This situation requires careful tracking. Talk to your Mesa CPA advisor about how to structure the documentation.


You received a government loan or grant that might be forgivable.

Forgivable loans and grants have specific accounting treatment. If any portion is expected to be forgiven, it should not be recorded as a liability — it's income. Conversely, the portion expected to be repaid is a liability. Get guidance from your Mesa CPA team on the specific program terms.


You've been making loan payments without properly splitting principal and interest.

Your loan balance on the books will be wrong and your interest expense will be wrong. Your Mesa CPA bookkeeper can reconstruct the history using the amortization schedule if you provide it.


FAQ

Why can't I just record the loan deposit as income?

Because it's not income — it's borrowed money you have to repay. Recording it as income would overstate your revenue, distort your profitability, and create a tax problem (you'd pay income tax on borrowed money).


Is loan interest tax deductible?

Yes — interest on money borrowed for business purposes is generally deductible as a business expense. Principal repayments are not deductible. This is why splitting your payments correctly matters.


What if my business loan is personally guaranteed?

A personal guarantee means you're personally liable if the corporation defaults. It doesn't change how the loan is recorded in the corporation's books — it's still a corporate liability. But it affects your personal risk profile, which is relevant for financial planning.


How do I find my current loan balance?

In QBO, look at the loan liability account under your Chart of Accounts — the balance should reflect payments made to date. Cross-reference with your lender's statement for accuracy. Any discrepancies are usually a sign that principal/interest wasn't split correctly.