A loan balance sheet helps to record and list outstanding loans. It offers real-time information on cash flow obligations and debt service requirements. Automated loan balance sheets help with accuracy, time efficiency, and cash flow management.
Popular tools for loan balance sheet management include Microsoft Excel, Google Sheets, and other accounting software solutions. It is important to track loan balances properly for better representation of financial health. Organizations should select the right solution based on operational needs, cross-check it with bank statements, and do regular audits.
What is a Loan Balance Sheet
A loan balance sheet is a financial document showing all outstanding loans by a borrower. The sheet works like a traditional balance sheet. However, it focuses only on liabilities and their current standing.
It helps get timely insights into cash flow obligations and debt service requirements. You can organize and track the status of each loan of your business.
The key components include:
- Principal Amount: borrowed initial amount without interest or fees
- Interest Rates: a fixed or variable percentage on the outstanding principal amount.
- Repayment Schedules: frequency of payments. Usually monthly, quarterly, or annually.
- Outstanding Balances: the amount in hand after partially paying off the principal or interest
- Fees and Penalties: additional charges like late payment penalties or service charges
Tracking loans meticulously boosts budgeting and financial planning. It helps measure cash flow needs, avoid late penalties, make better decisions, and record accurately.
Benefits of Automating a Loan Balance Sheet
Traditional loan tracking is done via spreadsheets or paper statements. These can create difficulties and errors. Automated loan balance sheets help reduce mistakes.
- More Accuracy: Helps minimize manual data entry errors. The automated calculations work fast with accuracy.
- Time Efficiency: Help in calculating interests, scheduling amortization, and updating outstanding balances, very quickly.
- Enhanced Management of Cash Flow: You receive instant notifications that help avoid late fees and missed payments.
- Stronger Forecasting: Real-time, automated reports can effectively forecast future payment obligations and interest expenses. This aids in accurate decision-making.
- Scalable Solution: The software solution grows with your business. It is capable of handling multiple loans without an increase in workload.
How to Create an Automated Loan Balance Sheet: Step-by-Step Guide
Step 1: Choosing the Right Tool
Businesses choose the right tool depending on their operational needs. Factors to consider revolve around:
- The number of loans
- The complexity of the financial functions
- The chances of additional finance functions
Here are the available options to choose from:
Microsoft Excel
This is the most well-known and popularly used financial tool. It comes with the Microsoft Office pack and is good for creating customized balance sheets. It offers formulas and templates that can be worked on and modified as needed.
Google Sheets
This is a free and cloud-based alternative to Microsoft Excel. Though some of the functionalities are limited in comparison to MS Excel, the tool is quite handy with formulas and templates.
Loan Management Tools
Loan management software is usually a cloud-based solution that lets the users automate the whole process. From loan application to closing of the loan, the system helps with all or most of the steps. Popular names include LoanPro, Lendio, AMFG Loan Manager, etc.
Accounting Software
Then there are online, cloud-based accounting software solutions. They offer balance sheet software features, from loan tracking to creating balance sheets. These solutions enable users to reconcile with banks digitally and get credit statements. Some popular examples include Financfy, QuickBooks, ZohoBooks, etc.
Step 2: Set Up Loan Data
The next step is to enter all the loan details which include:
- The principal amount
- The date of the loan application
- The duration or how long the loan will be viable
- The fixed or variable interest rate
- Frequency of paying the loan (monthly, quarterly, yearly, etc.)
- Any fees that need to be included in the calculation
Users can enter the details manually in Excel or Google Sheets. Or if they are using more advanced accounting tools, they get bullet-in options to input these.
Step 3: Automate Calculations
When you use tools like MS Excel, you can use default formulas or input your own ones. However, the latter may be a bit tedious at times.
Built-in Excel formulas for loan calculations include:
- PMT, which calculates constant loan payments against constant interest rates.
- NPER, which shows the number of payment periods for an investment based on regular, constant payments and a constant interest rate.
- PV and FV, which give the present and future values against a constant, periodic investment.
Loan management solutions help with these more accurately. Though they are more sophisticated, you get precise formulas for interest and balance tracking.
Many software solutions will also create and calculate amortization tables. These tables will show each payment’s breakdown, from principal amount to interest amount over the specified tenure.
Step 4: Set Up Alerts and Notifications
With loan management tools, you can set up alerts to remind you of pending payments. The reminders could be emails, SMS, or in-app notifications. You can set the dates and times to remind you of the payment and avoid fines and losses.
The tools also help set up notifications for changes in interest rates and possible hitting of thresholds of balances.
Step 5: Generate Reports and Visuals
The final step is to generate automated reports with detailed data and visuals. These reports show upcoming payments and cash projections. Users can view possible shortfalls in loan management. They can also view payments made, outstanding balances, and accrued interests. The reports also display the trends of loan payments and interest accumulation as well.
Top Tools and Software for Automated Loan Balance Sheets
Advanced accounting software often offers features to automate loan balance sheets of businesses. Also, there are some dedicated loan management software that are specifically designed to handle loan tracking, repayment schedules, interest calculations, and financial reporting with greater accuracy and efficiency.
1. Financfy (Recommended for Business & Professional Use)
Financfy is an accounting and loan-tracking software solution that serves all types of businesses. It is cloud-based, so there is no hassle of setting it up. Its easy-to-use interface makes loan management extremely easy and efficient.
The software’s loan management feature helps users calculate loan balances, track changing interest rates, and stay aligned with the payment schedules. It also integrates with bank accounts, allowing real-time updates and alerts.
Financfy also gives insights daily, per project, and bank branch-wise, which maximizes savings and minimizes costs.
You can also keep track of cash inflows and outflows with ease. It provides financial insights with customizable reports and real-time tracking that help to forecast cash flows. Additionally, you can manage budgets to set financial goals.
2. QuickBooks (For Small & Medium Businesses)
Quickbooks by Intuit offers a 360-degree accounting solution that helps with loan management as well. The tool enables easy liability management and recording of loan payments. Generating loan balance sheets is very easy with this tool.
The software works best when integrated with third-party apps. However, the automation feature for loan management is limited. This curtails the creation of smooth, real-time reports.
3. FreshBooks (For Freelancers & Small Businesses)
For freelancers or startups, FreshBooks offers a simple alternative for invoicing and accounting. Its basic loan tracking features help to manage small loans and short-term financing. It has a simple expense tracker that displays spending and profitability, without much fuss.
Its Automatic Mobile Receipt Scanning logs users in automatically and categorizes the expenses. However, the software does not offer advanced loan amortization features.
4. Zoho Books (For Growing Businesses)
A comprehensive accounting software, Zoho Books has numerous features. Its loan management feature lets users enjoy automated payment scheduling and interest calculations. Its robotic process automation (RPA) feature helps easily track loan progress and integrate with multiple banking platforms.
5. Wave Accounting (For Small Business Owners & Startups)
Wave Accounting is free software that startups can use for basic loan tracking and accounting. It is ideal for a business with minimal loan management needs.
Its invoicing feature helps users send professional invoices to clients. One can get reminders for payment with its Pro version.
Its cash management feature is simple. However, with the Pro plan, you can automatically import, merge, and categorize bank transactions from anywhere, anytime.
The tool, however, cannot amortize loans automatically. It also lacks automated balance sheet adjustments.
6. Excel & Google Sheets (For Manual Customization)
Now these options are the easiest, most convenient, and most comfortable for solopreneurs and small businesses with small teams. They can create custom formulas for various loan balance sheet components like amortization, interest calculations, and payment tracking.
These can be automated using macros in MS Excel or Google Sheets. However, you need to set them up manually.
7. Xero (For Growing Businesses & Enterprises)
A powerful accounting software with loan balance sheet generation capability is Xero. This tool creates financial statements effortlessly. Xero helps to track all business finances on one page, with a smooth dashboard. Users stay updated on key metrics like account balances, cash flow, and the status of invoices, bills, and expenses.
The tool also allows integration with banks easily and other financial apps. This helps in quick, automated reconciliations. As the tool is for both growing and established companies, it assists businesses that require multi-currency and tax-compliant reporting.
8. Loan Management-Specific Software (For Large Loan Portfolios)
To handle large loans, advanced loan management tools are available. Tools like Lendio, LoanPro, AMFG Loan Manager, etc. are the best options for financial institutions or businesses managing many loans at a time. These tools include detailed amortization schedules, compliance tracking, and forecasting tools.
Common Pitfalls to Avoid
Automated Loan Balance Sheets provide a snapshot of a company’s financial position at a specific point in time. However, reading and interpreting a balance sheet correctly can be challenging.
- Not completing data entry or leaving out some fees.
- Avoiding manual checks and only depending on automation.
- Failing to update the software regularly.
- Using older versions of templates in
- Google Sheets or MS Excel.
- Not checking or setting the alerts for payment dates.
Maintaining Your Automated Loan Balance Sheet
Automated loan balance sheets ensure borrowers receive a clear view of their loan obligations, payment history, and progress toward repayment. Lenders can manage portfolios by offering insights into overall loan performance, risk exposure, and compliance with regulatory requirements. So, maintaining it properly includes:
- Cross-checking the balance sheets against the bank’s or lender’s statements and reports helps confirm records.
- Training team members or users who work with the tool.
- In the case of variable interest rates, fluctuations should be noted and systems updated.
- Conducting regular audits of the solution to know if the system is running well with the right inputs.
- Loan balance sheets should be updated whenever a new loan is issued.
Conclusion
Automated solutions like Financfy help you better track loans and finances. With the possibility of multiple loans for your business, you need to automate your loan balance sheet to stay on track. These tools help you save time, work more accurately, and ensure proper financial tracking. Though some pitfalls exist, properly maintaining the tools helps solve these issues.
Businesses, especially SMBs and startups, should try out Financfy and automate loan balance sheets! With its simplified accounting and financial tracking features, you get an error-free summary report of revenues, costs, and profits/losses. It also offers smart Data & Insights and easy cash flow management.
