How to Record a Loan or Line of Credit in QuickBooks

To record a loan in QuickBooks, set up a liability account for the balance you owe, deposit the loan proceeds into that account, then split every payment between principal and interest so the balance goes down correctly. A line of credit works the same way but uses a current liability account you draw on and pay back repeatedly. This guide covers setting up the accounts, recording the funds, entering payments with the right principal and interest split, handling a revolving line of credit, and reconciling the loan to your bank statement in QuickBooks Online and Desktop.

A loan only reconciles when the deposit of the funds and every payment are both in your books. If the loan proceeds or the monthly payments are missing from your register, convert your PDF bank statement to QuickBooks with the tool at the top of this page so the funding deposit and each payment that cleared your bank are recorded before you set up the split.

How do I set up a loan account in QuickBooks?

Set up a loan by creating a liability account in your chart of accounts for the amount you owe. In QuickBooks Online, go to Chart of accounts, New, and choose a Long-term liabilities account type for a loan longer than a year, or Other current liabilities for one due within a year. In Desktop, add the account from Lists, Chart of Accounts with the matching liability type. Name it after the lender so it is easy to find, and leave the opening balance at zero, because you record the actual funds in the next step.

How do I record the loan money I received?

Record loan proceeds as a deposit into your bank account with the other side going to the loan liability account. When the lender funds the loan, the money hits your checking account, so you enter a bank deposit and select the loan liability account as the source. This increases your cash and increases what you owe by the same amount, which is correct. Do not record the funding as income; a loan is money you have to repay, not revenue, so it never touches your profit and loss.

How do I record a loan payment with principal and interest?

Record each loan payment as a split: the principal portion reduces the loan liability and the interest portion posts to an interest expense account. Look at the lender's amortization schedule or statement to see how much of the payment is principal and how much is interest, because the mix changes every month. In QuickBooks, enter the payment as a check or expense with two lines, one to the loan liability and one to interest expense, adding to the total that left your bank. Only the interest is a deductible expense; the principal simply pays down the balance.

How is a line of credit different from a loan?

A line of credit is revolving, so you draw on it and repay it many times, while a term loan is a single lump sum you pay down on a fixed schedule. Set up a line of credit as an Other current liability account. When you draw funds, record a deposit to your bank with the offset to the line of credit account; when you repay, split the payment between the line of credit principal and interest expense. Because the balance moves up and down, reconciling the line of credit account to the lender's statement each month is what keeps it accurate.

How do I record interest and fees on a line of credit?

Record line of credit interest as interest expense and any draw or maintenance fees as a bank or finance charge expense in the month they hit. Revolving lines often charge interest only on the drawn balance plus periodic fees, and these usually post straight to your bank as separate charges. Enter each as an expense from the bank account so it reconciles, coding interest to interest expense and fees to a bank charges or finance charge account. Keeping fees separate from interest gives you a cleaner picture of what the credit actually costs.

How do I reconcile a loan to my bank statement?

Reconcile a loan by matching the funding deposit and every payment in QuickBooks to the same transactions on your bank statement, then comparing the loan balance to the lender's statement. Each payment that left your bank should match a split payment in QuickBooks, and the funding deposit should match the day the money arrived. After a few months, the balance in your loan liability account should equal the payoff balance the lender shows; if it drifts, your principal and interest split is usually off. Converting the bank PDF makes this straightforward because every real payment is in the file to match against.

How do I record an SBA or EIDL loan payment in QuickBooks?

Record an SBA or EIDL loan payment the same way as any other term loan payment: split the withdrawal between the principal portion, which reduces the long-term liability, and the interest portion, which is an interest expense. What makes these loans different is not the entry, it is the history behind it. Many EIDL borrowers had payments deferred for a long stretch while interest kept accruing, so the first payments after deferral are weighted far more heavily toward interest than a normal amortization schedule would suggest.

That accrued interest is the part people get wrong. If interest built up during a deferment period and was never recorded, the liability on your balance sheet is understated, and applying early payments mostly to principal understates it further. The clean approach is to get the current payoff statement from the lender, compare it to the balance in your QuickBooks liability account, and book the difference as accrued interest expense before you start splitting payments normally. Do not force the difference into principal to make the number agree.

SBA payments are also often made outside your normal bill-paying routine, by direct debit or through a federal payment portal, which means they show up as a bare debit on the bank statement with a descriptor that does not name the loan. Those are easy to miscategorize as a generic expense. Search for the exact recurring amount across the year rather than for the lender's name.

What if the payment amount changes every month?

A fixed-rate term loan has a level payment, so the only thing changing month to month is the split between principal and interest. A variable-rate loan or a line of credit changes the payment itself, which means you cannot enter one recurring transaction and forget it. The split has to be taken from the lender's statement each period rather than from a schedule you built once.

The practical method is to reconcile the liability account against the lender statement every month or at minimum every quarter. Take the closing balance the lender reports, compare it to your QuickBooks balance, and the difference tells you immediately whether your splits have been drifting. Catching a drift after two months is a small correcting entry. Catching it after two years means reconstructing a schedule from statements, which is the expensive version.

How do I record loan fees and origination costs?

Origination fees, guarantee fees, and closing costs are not principal, and they are not usually a plain expense on the day they are charged either. When the lender deducts the fee from the proceeds, the cash you receive is smaller than the face value of the loan, and the liability you record should still be the full amount borrowed. The fee is the difference.

Smaller fees are commonly expensed in the period incurred, which is simple and defensible for modest amounts. Larger loan costs are more properly spread across the life of the loan so the cost lands in the periods that benefit from the borrowing. Which treatment applies depends on the size of the fee relative to your business and on your accounting method, so this is a reasonable question to put to your accountant rather than a setting to pick in QuickBooks. What matters for the bookkeeping is that the fee never disappears into principal, because that permanently misstates the loan balance.

How do I handle a loan that was paid off mid-year?

When a loan is paid off, the final payment usually differs from the regular one, and it is not a normal split. Take the payoff figure from the lender, which typically includes the remaining principal, interest accrued to the payoff date, and sometimes a prepayment charge. Split the final withdrawal across those three: principal to clear the liability to exactly zero, interest to interest expense, and any prepayment penalty to its own expense line rather than buried in interest.

The check on your work is simple. After the final payment posts, the liability account should read zero, not a few dollars either way. A small residual balance almost always means one month's split was estimated rather than taken from a statement, and it is worth tracing rather than writing off, because the same error is usually repeated across several months.

What if I do not have an amortization schedule?

Work backwards from the loan statement. The lender tells you the balance at the start of the period and the balance at the end, and the difference between those two figures is the principal you paid. Subtract that principal from the total payment that left your bank and what remains is interest and fees. This gives you the correct split for any month, and it works for lenders who never send a schedule at all.

Do not estimate the split and plan to fix it later. An estimated principal figure leaves the loan balance in QuickBooks disagreeing with the lender, and once several months of estimates have stacked up, finding which month went wrong takes longer than getting each one right did. The two minutes of arithmetic above is the cheapest part of the whole process.

The mistake almost everyone makes at least once

Coding the entire loan payment to an expense account. It is an easy one to make, because the payment leaves the bank as a single amount and the bank feed offers to categorize it as a single line, usually suggesting something like Loan Payment or Interest Expense based on the description.

Accepting that suggestion does two things at once. It overstates your expenses by the principal portion, which understates your profit and your tax bill in a way the IRS does not accept, because repaying borrowed money was never a deductible expense. And it leaves the loan liability frozen at its original balance forever, so your balance sheet claims you still owe the full amount years after you started paying it down. Both errors compound quietly every month until somebody reconciles the loan.

If you have been doing this, the fix is not to delete history. Work out the correct cumulative principal paid to date, then post one adjusting journal entry that moves that amount out of the expense account and into the loan liability, dated in the current period if the prior year is already filed. Then set up the split correctly going forward.

How do I record a mortgage payment in QuickBooks?

A mortgage payment is a three way or four way split rather than a two way one. Principal reduces the mortgage liability, interest posts to interest expense, and the escrow portion goes to an escrow asset account rather than to expense, because escrow is your money being held on your behalf. When the lender later pays property tax or insurance out of that escrow, that is when the expense is recorded.

Treating escrow as an expense at payment time is the usual error here, and it double counts: once when the money goes into escrow and again when the tax bill is recognized. Set up the escrow account as an other current asset when you set up the loan, and the rest follows naturally.

How do I record an SBA loan in QuickBooks?

Set it up the same way as any other term loan, as a long term liability with the funded amount as the opening balance, then split each payment between principal and interest from the lender statement. The mechanics are not special. What differs is around the edges, and those edges are where the errors live.

Guarantee fees and packaging fees charged at closing are loan costs, not interest, and they are frequently deducted from the disbursement so the amount that reaches your bank is smaller than the loan amount. Record the full loan as the liability, the cash actually received to the bank, and the difference to the fee account, rather than booking the smaller figure and quietly losing the fee. If a period of deferred payments applies, interest usually continues to accrue during it, so a month with no payment is not necessarily a month with no interest expense.

How do I check the loan balance in QuickBooks is right?

Compare the loan account balance in QuickBooks to the payoff or principal balance on the lender statement at the same date, every month, alongside your bank reconciliation. They should match to the cent. If they do not, the gap is almost always a payment split that used the wrong principal figure, and finding it in the month it happened takes a minute. If the two figures have already been apart for a while, there is a methodical way to work out why a QuickBooks loan balance is wrong and bring it back to the lender's number.

This is the single habit that separates books that survive a lender review from books that do not. A loan is one of the few balance sheet accounts with an independent third party publishing the correct answer every month. Checking against it is free, and skipping it is how a loan balance drifts thousands of dollars from reality without anyone noticing.

Why lenders care how your loan is recorded

Clean loan records matter beyond bookkeeping, because when you apply for more credit the lender reads your financial statements and bank activity to judge whether you can service the debt. A loan booked as income, or payments with no principal and interest split, distorts both your profit and your liabilities and can weaken an application. The same statements you convert here are exactly what underwriters read when they assess a borrower, so keeping the liability, interest, and payments accurate helps your books tell a true story. For the account setup side, see the guide on setting up your chart of accounts in QuickBooks.

Start from a complete bank record

Every step above assumes the loan deposit and each payment are in QuickBooks. When a payment is missing, on an account with no bank feed, or you are recording a loan from prior months, converting the PDF statements gets every real transaction in with its date and amount. From there you set up the liability, book the proceeds, and split each payment. For catch-up work across several months, the batch PDF to QuickBooks converter brings a whole year of statements in at once so the loan history is complete before you reconcile.