"So the principal portion is tax exempt"

Principal is never a tax deduction. The principal is paying down the debt balance.

"and the interest portion is deductible?"

Interest can be defined as "the cost of borrowing" and if the purpose of the loan (the use of the funds borrowed) meets a deductible purpose for this entity as defined by the IRS, then the interest is deductible per the IRS.

Otherwise, that's just too vague of a question. Sorry.