Q: Should we be putting the loans to owners into our debt service calculations?
A: It is very prudent to do so since loans to owners are usually converted to distributions for owners and partners of the pass-through entities, and they are frequently either forgiven or later converted to salary for owners of a Subchapter C corporation.
The critical thing to keep in mind in setting a debt service calculation is that loans to owners or partners are cash outflows that reduce the amount of cash available to service the borrower's interest-bearing debt.
Course overview: Understanding Schedules K-1