Square Loan payment breakdown

[Littleblue1]

I use Wave Accounting, and import my own information.  

Can anyone tell me how they record the Square loan repayment from your dailies as far as principal and interest/loan fee. 

Since the repayment is a flat rate percentage of the dailies and does not show what portion is the loan fee Im not sure how to break this down and record.

Thank you.

[TheRealChipA · Accepted solution]

Hi there @Littleblue1.  So, first I need to clear up something.  When you take out the loan, Square adds the flat loan fee to the total amount that you owe.  Then, they apply the daily repayment amount to that total which includes the loan fee.  They do not tell you how much of each repayment amount is principle vs. loan fee for two reasons.  First, it is NOT interest which can change over the life of the loan.  Second, since this repayment amount is calculated at the transaction level first, it would be too burdensome to track those numbers since they don’t make sense for MCAs.  

What I do when I take out a Square Loan is:

1. I set up the loan balance sheet account and add two transactions to it — one for the amount of the loan and another for the loan fee.
2. Each day, I post the daily repayment amount against that total loan amount.

Yes, this does make it look like I paid the full loan fee (in my P&L) on the date I took out the loan.  But, actually, this is the truth of the matter since it isn’t interest, but a flat fee.  But it has the advantage of not having to get into the nuts and bolts of prorating that loan fee which from an accounting point of view doesn’t serve any practical or legal purpose.

Lastly, I’d recommend talking to your accountant about this.  If they (for some odd reason) want you to prorate the loan fee on a daily or weekly or monthly basis, they would be the ones to have to tell you how to calculate and book that.  But I’d be very surprised if they cared one way or the other, since the IRS certainly doesn’t.

Let me know if you have any other questions.

[TheRealChipA · Accepted solution]

You’re welcome.  I will reiterate that I would recommend speaking with your accountant.  I don’t know the laws and regulations in your state and so I can’t say for certain that there might not be issues with this where you live and have your business.  It’s always best to be safe now rather than sorry later.  But what I do I believe most users of MCA loans do.

[TheRealChipA · Accepted solution]

Hi there @Littleblue1.  So, first I need to clear up something.  When you take out the loan, Square adds the flat loan fee to the total amount that you owe.  Then, they apply the daily repayment amount to that total which includes the loan fee.  They do not tell you how much of each repayment amount is principle vs. loan fee for two reasons.  First, it is NOT interest which can change over the life of the loan.  Second, since this repayment amount is calculated at the transaction level first, it would be too burdensome to track those numbers since they don’t make sense for MCAs.  

What I do when I take out a Square Loan is:

1. I set up the loan balance sheet account and add two transactions to it — one for the amount of the loan and another for the loan fee.
2. Each day, I post the daily repayment amount against that total loan amount.

Yes, this does make it look like I paid the full loan fee (in my P&L) on the date I took out the loan.  But, actually, this is the truth of the matter since it isn’t interest, but a flat fee.  But it has the advantage of not having to get into the nuts and bolts of prorating that loan fee which from an accounting point of view doesn’t serve any practical or legal purpose.

Lastly, I’d recommend talking to your accountant about this.  If they (for some odd reason) want you to prorate the loan fee on a daily or weekly or monthly basis, they would be the ones to have to tell you how to calculate and book that.  But I’d be very surprised if they cared one way or the other, since the IRS certainly doesn’t.

Let me know if you have any other questions.

[Littleblue1]

Great idea.  Thank you.  I know they do not break down the principal vs fee on the daily repayment, seems tricky to record that way.  I will use your method.  Thanks again

[TheRealChipA · Accepted solution]

You’re welcome.  I will reiterate that I would recommend speaking with your accountant.  I don’t know the laws and regulations in your state and so I can’t say for certain that there might not be issues with this where you live and have your business.  It’s always best to be safe now rather than sorry later.  But what I do I believe most users of MCA loans do.

[Abby_M · Accepted solution]

Hi @Littleblue1 

Thanks for posting on the Seller Community.

Square loans have no ongoing interest charges. The total cost of the loan is simply the loan fee, which is the difference between the total owed amount and the initial loan amount you apply for. The total cost of the loan never changes.

Please contact us directly, our Square Loans line is open between 8am-5pm PT Monday-Friday if you want to give us a call.

[Littleblue1]

Thank you, I understand that there is only the loan fee.  My question was regarding accounting and how to divide the principal and loan fee portion of the amount deducted from the daily sales when it is not indicated. 

[Abby_M]

Hi, @Littleblue1 

The Square loan fee and the the offer amount are not divided. 

Please contact us directly, our Square Loans line is open between 8am-5pm PT Monday-Friday if you want to give us a call.