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Monday, August 15, 2005

Recording SBA Loan distributions.

Question:

I am in the process of opening a smoothies business and have secured a $150,000 SBA loan. The way that SBA works is that you (over a period of several months to 1 year max) take out disbursements to pay for your startup costs (including equipment, fees, tenant improvements, inventory, etc). The disbursements can be in uneven succession ($200, $40,000, $3583, etc). For the first year the SBA loan is setup as interest only on the portion dispersed and after one year it goes to principle and interest via a 7 year term. We are trying to figure out the best way to set this up in QuickBooks. We also need to be able to track the expenses that where incurred at startup (like construction costs and building permit fees). All of this did not come from us directly, but came from the SBA Loan. How do we then record an item as an expense when it was paid for via a loan disbursements? For example: When we go to record $5000 in fees for the building permit, QuickBooks asks what account it came from. The problem is that it wasn’t paid for via an account. The Bank cut the check directly to the city building department and thus we only have the receipt showing that the fee was paid.

Any suggestions would help.

Thanks

Answer:

Very good question. This is something that I’m sure many users face. How do you record an expense that was paid directly?

The problem is that QuickBooks really doesn’t have a mechanism to record these types of transactions. So ideally, you would run it through your bank account...but in your case that is not possible, so here is what you do.

You will need to record journal entries for the disbursements that came from the SBA loan. To do this follow this procedure:

1. Hopefully, you have a record of all the transactions in your SBA loan account. If you haven’t done so already, set-up the SBA loan account as a liability.

2. Open the journal entries screen. (Company - Make Journal Entries)

3. For each distribution, DEBIT the applicable expense account or asset account and CREDIT the SBA loan account. Be sure to enter thorough memos so that you and your accountant can track these things come tax time.

4. When you are done entering the journal entries, pull up your balance sheet and ensure that the balance you have in the SBA loan account matches your most recent statement.


Just for you information, if you were to receive a check from the SBA to deposit in your company account and then disburse funds yourself the process would be easier. This scenario would call for you to make a Funds Transfer (Banking - Transfer Funds).

Note: Just a word of caution, when recording the distributions from the SBA you need to be careful how you classify them. For instance you mentioned that you paid $5,000 for a building permit...I assume this means you are either building a building or remodeling one. In most cases that building permit fee would actually be a capitalized as part of the building or leasehold improvements not recorded as an expense. Also the IRS requires that you capitalize many of your start-up expenses as well. You should talk to someone familiar with your business and accounting.

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