A business loan is borrowed capital used to fund business operations, growth or asset purchases. It creates a liability that must be repaid with interest over an agreed term.
Business loans are a common source of financing for SMBs. Types include term loans (fixed amount repaid over a set period), lines of credit (flexible borrowing up to an approved limit), overdraft facilities (short-term borrowing against your business account), equipment finance (loans secured against specific assets), invoice finance (borrowing against outstanding receivables) and commercial mortgages (for property purchases). From a bookkeeping perspective, a loan affects multiple accounts: the initial drawdown increases cash (asset) and creates a liability. Each repayment is split between principal (reducing the liability) and interest (recorded as an expense). The loan balance appears on the balance sheet as a current liability (for the portion due within 12 months) and non-current liability (for the remainder). SortBooks correctly categorises loan drawdowns, repayments and interest charges in Xero, maintaining accurate liability tracking on your balance sheet.
SortBooks automates the bookkeeping processes related to business loan by connecting to your Xero account and using AI to categorise transactions, reconcile bank feeds and generate accurate reports. Instead of manually managing business loan, SortBooks handles it automatically with 97%+ accuracy - saving you hours every week and ensuring your books are always up to date and compliant.
A liability is a financial obligation your business owes to another party. Liabilities are listed on the balance sheet and include loans, accounts payable, tax payable and accrued expenses.
Interest expense is the cost of borrowing money. It includes interest on business loans, overdrafts, credit cards and any other form of debt used to finance business operations.
The balance sheet is a financial statement that shows your business's assets, liabilities and equity at a specific point in time. It follows the equation: Assets = Liabilities + Equity.
Cash flow is the movement of money in and out of your business. Positive cash flow means more money coming in than going out. It is often considered more important than profit for business survival.
An amortisation schedule is a table showing each periodic payment on a loan, broken down into principal and interest components, with the remaining balance after each payment.
SortBooks handles all the complexity automatically. Just connect Xero and let AI manage your books.