When a small business takes out a loan, it will have to pay the loan back. The payments on the loan each month will be equal, however the amount of principal paid on the loan and the amount of interest paid on the loan will change with each payment. An amortization table shows how a payment breaks down to principal paid and interest paid. The amortization table will also keep track of how much principal remains left to be paid.
Draw four columns. Label the columns "Payment Amount," "Interest Paid," "Principal Paid" and "Remaining Loan Balance."
Write the payment amount down the "Payment Amount" column for as many payments you must make on the loan. For example, if you have a loan requiring 10 payments of $400, then write $400, 10 times.
Multiply the interest rate on the loan by the remaining loan balance, which for the first payment is the original loan amount, and write the amount under the "Interest Paid" column. For example, you have a $5,000 loan that charges 5 percent interest, so $5,000 times 5 percent equals $250.
Subtract the payment amount from the interest paid and write the difference in the "Principal Paid" column. In the example, $400 minus $250 equals $150.
Subtract the remaining loan balance, which for the first set is the original loan amount, by the principal paid and put the result in the "Remaining Loan Balance" column. In the example, $5,000 minus $150 equals $4,850.
Repeat these steps for each payment until the remaining loan balance is zero.
- Calculator image by Alhazm Salemi from Fotolia.com