I would say that if the IRS does not treat the SBA payments as debt forgiveness type taxable income, the proper accounting treatment should be for the principal payments made by the SBA
Debit Loan Payable
Credit Paid in Capital
For the interest component, I would say no accounting entries since the client never paid the interest (the SBA did) and I assume the IRS will not allow an interest deduction for amounts not offset by debt forgiveness income. But I don’t think the IRS has issued definitive guidance on this topic yet.
