Does making a loan payment lower my profit?

by Joe
(Grand Rapids, MI)

If I make a lump sum payment to lower a loan will that lower my profit?


Joe, thanks for the question!

The 2 ways to lower your profit are to decrease sales or increase expenses. Making a principal payment on a loan is a decrease to a liabliity, which is great for your business, but has no effect on profit. The interest portion of a loan payment is an expense, however, and that amount will lower your profit.

Hope that helps!