"Setting up a loan" as in the Quicken Community discussion of the same name,found here:
This does not appear to be what the o.p. intended; so the concern about how Quicken "categorizes" the transaction (in the Debt tab) appears to be a relatively meaningless concern (I don't believe there is a meaningful way to categorize what the op did).
I believe the original poster in that discussion, should be looking at the fact that removing funds from the Quicken loan account will (properly) cause Quicken to believe that the loan amount has been reduced ... also (properly) causing Quicken to re-compute the loan Payment Schedule.
For the op's purposes: The amount of the debt must remain the same - no matter what was done with the loan funds.
I believe that the way to account for the portion of the original loan that were deposited in the checking account, is to create a deposit transaction in the destination account ... with whatever category is desired ... with the exception of a transfer from the loan account.