---
title: "What Is Amortization?"
term: "Amortization"
description: "Amortization is the gradual paydown of debt principal over time through scheduled payments—or, in accounting, the spread of an intangible asset's cost over its useful life."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/amortization
---

# What Is Amortization?

> Amortization is the gradual paydown of debt principal over time through scheduled payments—or, in accounting, the spread of an intangible asset's cost over its useful life.

**Amortization** either schedules repayment of loan principal over time or allocates the cost of intangible assets across accounting periods.

## How it works

In venture debt, a typical structure might be twelve months interest-only, then thirty-six months of equal amortizing payments retiring principal. Early payments skew interest-heavy; later ones retire more principal. Founders model combined burn plus debt service before signing.

On the income statement, capitalized customer acquisition or acquired IP may amortize over useful life—non-cash expense reducing reported earnings but not immediate cash. Lenders focus on cash amortization; public comps focus on both.

## Why it matters

- **Founders:** The flip from IO to amortization is a classic runway cliff—forecast it in month eighteen, not month seventeen.
- **Investors:** Portfolio company debt covenants often tie to EBITDA while cash amortization drains liquidity.
- **Operators:** Distinguish cash debt paydown from book amortization in board packs to avoid confusion.

## Common mistake

Budgeting only for interest during the IO period and forgetting principal amortization starts automatically unless you refinance or prepay.

## Related ideas

Venture debt, [all-in yield](/glossary/all-in-yield), interest-only periods, and EBITDA add-backs.

## FAQ

### What is amortization in simple terms?

For loans, it is repaying borrowed money in installments so the balance hits zero by maturity. Each payment splits between interest and principal. In cap tables, 'amortization' also means expensing software or IP acquisition costs over years on the books.

### Why does amortization matter?

Venture debt often includes interest-only periods then amortization—suddenly monthly cash needs jump. PE buyers talk about amortizing acquisition debt from company cash flows; founders feel that after buyouts.


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Source: https://venturecapitaltracker.com/glossary/amortization