The original amount borrowed or the remaining loan balance before interest.
For example, a business borrows $100,000 (the principal) at 8% interest. In the first year's payments, a portion of each monthly installment reduces the principal balance, while the rest covers interest — by the end of year one, roughly $15,000 in principal has been repaid.
Why it matters: It is the actual money borrowed; until the principal is reduced, the business will continue to bleed cash through interest payments.
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