Loan Manager

To add a new loan to Loan Manager, there are some preliminary steps to make before running Loan Manager:

1. Evaluate if this is a loan that Loan Manager can track.  Loan Manager doesn’t track interest-only loans, so if your loan requires you to make regular payments of interest over time and the entire principal in a single payment at the end of the term, Loan Manager isn’t the right tool
2. Verify the liability account for the new loan exists in your QuickBooks chart of accounts and that it is active; if not, add it or change its status
3. Verify the payment account (normally a bank account) which will be used to make payments on the new loan exists in your QuickBooks chart of accounts and that it is active; if not, add it or change its status
4. Verify the expense account which will be used to record interest expense for the new loan exists in your QuickBooks chart of accounts and that it is active; if not, add it or change its status
5. Verify the expense account which will be used to record other fees (such as bank fees) for the new loan exists in your QuickBooks chart of accounts and that it is active; if not, add it or change its status
6. If your loan has escrow payments associated with it, verify that the asset account which will be used to record prepaid expenses (such as property taxes or insurance) for the new loan exists in your QuickBooks chart of accounts and that its active; if not, add it or change its status
7. Verify the vendor or other name to which payments will be made exists; if not, add the vendor or other name
8. Enter the journal entries in QuickBooks so the current balance of the liability account associated with your new loan equals the original amount of the loan
9. Have in front of you the following information about the new loan: the origination date, the term, the interest rate, whether your lender uses daily compounding (and if so, whether it’s on a 360 or 365 day basis), the payment amount, the sequential payment number, the due date of next payment, and the escrow amount (if any)

Since Loan Manager reads information from your QuickBooks chart of accounts when it first loads, if the accounts required to set up the loan do not exist when Loan Manager starts, you won’t be able to set up the loan properly – even if you open a window within QuickBooks to add the accounts while Loan Manager is running.

Here’s the main window of Loan Manager:

To add a new loan, click the Add a Loan… button.  The Add Loan window, the first step in the process, appears.  Since we’ve already followed the steps in our checklist, our accounts already exist and the balance of our liability account equals the Original Amount of the new loan.  In this example, that amount is $200,000.00.  Choose your liability account and Lender (a vendor or other name) from the pull down menus.  Enter the Origination Date for the loan, the Original Amount (which in our example is $200,000.00), the Term and the type of number the entered Term represents (weeks, months, or years).

Once this information is correct, press the Next button to bring up the second screen in the process of adding a loan.  On this screen, enter the Due Date of Next Payment, the Principal Amount, and the Next Payment Number.  For a new loan, the Next Payment Number will normally be 1 provided that you’re setting up the loan before your first payment is due.  Choose the Payment Period (one of weekly, bi-weekly, semi-monthly, monthly, bi-monthly, quarterly, semi-annually, or annually) from the pull down menu.  Specify whether the loan has an escrow payment associated with it, and if so, enter the Escrow Payment Amount and the Escrow Payment Account.  The Escrow Payment Account is normally an asset account because escrow payments are being made in advance of the expense being incurred.  If you want QuickBooks to remind you before a payment is due, make sure the checkbox is checked.

Once this information is correct, press the Next button to bring up the third screen in the process.  Enter the Interest Rate for your loan as a percent.  Choose the Compounding Period for you loan, which will default to the Payment Period you entered on the previous screen.  You’ll also have the option of setting the Compounding Period to Exact Days to specify that your lender is using either a 360 or 365 day year to calculate interest.  If you choose this setting, you’ll have the additional option of specifying the Compute Period as either 365/365 or 365/360.  This information would normally be found in your original loan documents.  Choose your Payment Account, Interest Expense Account, and Fees/Charges Expense Account from the pull down menus.  Normally, the Payment Account is a bank account, such as a checking account.

When this information is correct, press Finish.  You’ll see a screen similar to the one below.  In our example, we added a new loan with a principal of $200,000 at a 10% interest rate, a 60 month term with monthly payments, and a $2,000.00 monthly payment.  Since this loan is not is not fully amortizing with those provisions, there is a balloon payment at the end of the term.  Clicking on the Payment Schedule tab will display the payment information for the loan; the Contact Info tab will display the relevant information for the vendor or other name we specified as the Lender.  This information is maintained in QuickBooks itself, not Loan Manager.

It’s important to understand that Loan Manager is primarily a tool to calculate payment schedules and to simplify the process of distributing interest and principal payments to the appropriate GL accounts.  When you create a new loan in Loan Manager, the outstanding balance for that loan will start as $0 – until you record a transaction in the liability account in QuickBooks itself. Once the liability account is increased to reflect the loan’s principal, Loan Manager can assist you to record the regular payments.  Likewise, when you remove a loan from Loan Manager, you are not making changes to the liability account balance.  Since we completed our checklist steps before running Loan Manager, which included recording the loan balance in the liability account, the balance was displayed correctly once we added the loan.  Had we not completed that step, the Balance column for our new loan would show the balance of our liability account, or $0.

For more information on using Loan Manager, see our related articles on deleting a loan and recording a debt re-financing.

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