Reviewed and updated October 16, 2026
Record borrowing separately from sales
When a genuine business loan is funded, record the cash and corresponding loan liability. Do not post proceeds to sales merely because they arrived in the operating account. Retain the loan agreement, funding statement and amortization schedule.
SBA programs have different lender and eligibility requirements. Approval, pricing and permitted uses depend on the program and lender; clean books support an application but do not guarantee financing.
Split principal, interest and financed purchases
A loan payment generally contains principal and interest. Principal reduces the liability and is not an ordinary expense. Business interest may be deductible, subject to applicable limitations. Fees and closing costs can require separate treatment.
If the proceeds buy equipment or inventory, record the asset or purchase correctly. Tax treatment follows the use of funds and applicable rules, not the fact that borrowed money paid for it. Avoid deducting both the purchase and repayment as though they were two independent expenses.
Prepare numbers a lender can understand
Maintain reconciled profit-and-loss statements, balance sheets, tax returns and a schedule of existing debt. Explain owner draws, unusual transactions and differences between accounting profit and cash available for payments. Forecast the proposed debt service alongside payroll, rent and taxes.
Compare actual results with the forecast after funding. If debt is forgiven or modified, ask about tax reporting before removing the liability. Bring financing documents to your bookkeeping review so balances remain accurate. Good accounting helps you understand borrowing costs and repayment capacity throughout the life of the loan.
Official sources
This guide provides general information. The rules depend on the tax year, jurisdiction and your circumstances. Ask our team which filing or planning steps apply to you.
