Loan

Loan is money your business borrows or lends under an agreement. The agreement sets the amount, interest, how and when you repay, and any security. A loan is financing, not a sale or purchase.

If you borrow, record a liability on the balance sheet; interest and fees go to the profit and loss account. If you lend money, record an asset; interest you receive is income. Repayments usually have two parts: principal (reduces the balance) and interest (expense or income). Short‑term loans are shown as current; longer ones as non‑current. If funds come from or go to a director or shareholder, use a clear director’s loan record.

Before you sign a loan agreement, check:

• Interest rate, how it is calculated, and when it is charged.
• Repayment schedule, term, and whether early repayment is allowed.
• Security or guarantees required, and any covenants.
• Fees, charges, and what happens if you miss a payment.