Business Loan Amortization Estimator
Understanding Debt Amortization
When you take out a business loan to purchase equipment or scale your operations, you pay back both Principal (the original amount) and Interest (the cost of borrowing). In an amortized loan, your early payments are heavily skewed toward paying off interest. Only in the later years of the loan does the majority of your payment go toward reducing the principal.
Frequently Asked Questions
Is loan interest tax-deductible?
The interest is generally deductible to the extent the loan proceeds were used for the business — it follows what you spent the money on, not whose name is on the loan. If you used part of it personally, only the business share of the interest qualifies, so keep the proceeds traceable. Note that only the interest is deductible; the principal repayment is not, though what you bought with it may be depreciated or expensed under §179. There is a business interest limitation in §163(j), but it exempts businesses under a gross receipts threshold that almost no freelancer will reach.
Should I pay off my loan early?
It depends on the interest rate. If your loan is at 4%, and you can get an 8% return investing in the stock market or your own business, it mathematically makes sense to pay the minimum and invest the rest. If your loan is 15%, you should pay it off instantly.