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What Is Business Term Loan Amortization?
Business term loan amortization is the process of paying down a loan through fixed periodic payments, where each payment covers both interest owed and a portion of the original principal. The schedule is structured so that after the final payment, your balance reaches exactly zero.
What makes amortization distinct is how the interest-to-principal ratio shifts over the loan's life. Early payments are weighted heavily toward interest because your balance is large, and later payments are weighted toward principal as that balance shrinks.
The math behind every payment uses the standard amortization formula: PMT = P × r(1+r)n / ((1+r)n - 1). In this formula, P is the loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments.
This formula produces a payment that stays constant every month while the internal split between interest and principal silently shifts. Knowing this structure lets you make smarter decisions about prepayment, refinancing, and tax planning.
How the Amortization Schedule Works Month by Month
Each payment in an amortized loan is the same total dollar amount, but the share going to interest shrinks as your balance decreases. The interest portion is calculated fresh each month as: remaining balance × (annual rate / 12).
Take a ,000 loan at 9% over 5 years as an example. The monthly payment works out to ,076, with month one splitting as in interest and ,326 toward principal, leaving a balance of ,674.