Bookkeeping for CARES Act debt relief loan payments

The recent CARES Act has provided some debt relief payments to 7(a), 504, and Microloans from the Small Business Administration. Basically, the SBA will make monthly payments to these types of outstanding small business loans for a period of time, depending on the specific debt relief and loan payment criteria.

This activity may pose an issue in your bookkeeping because these are moneys that your small business will be receiving but are just going directly to your current loan account and not through your bank. So, this debt is not being paid by you (from your bank), nor are the moneys coming from investors or customers.

So, how do you report and explain this activity to possible future 3rd party reviews of your financials, such as tax agencies or banks?

In my bookkeeping opinion, outside 3rd party moneys that benefit your business should be reported in one of three ways:

  1. Income
  2. Equity
  3. Loans

In this case, a 3rd party is not giving you taxable income, nor are they giving you more loan moneys to be paid back later on. This leaves only one choice left, which is Equity.

So, in this case, I would create another equity account in your Chart of Accounts and title it something like “Loan Payments Made by SBA (COVID)”.

Then each time your current loan account receives moneys from the Small Business Administration, under the CARES Act debit relief program (due to the COVID pandemic), you would create the following entry in your bookkeeping platform:

  • Debit to the loan account
  • Credit to that new Equity account referenced above

This way, you are declaring moneys received from a specific party for a specific purpose and that your business did indeed benefit from this.

Your C.P.A. may have a different opinion on this matter, however what I have stated above at the very least catches the eye of your tax preparer and thus will not get buried and lost in your bookkeeping.

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.

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