{"id":13392,"date":"2023-01-17T19:20:00","date_gmt":"2023-01-17T19:20:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=13392"},"modified":"2023-01-18T22:06:21","modified_gmt":"2023-01-18T22:06:21","slug":"short-term-debt","status":"publish","type":"post","link":"https:\/\/businessyield.com\/finance-accounting\/short-term-debt\/","title":{"rendered":"SHORT TERM DEBT: Definition, Examples, and Debt financing","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"\n

Analyzing a company’s debt position can be helpful in determining whether the company is using debt to drive business growth, which, in some cases, is beneficial for this company. Where danger may lurk<\/a> is when a company takes on more debt than it can handle. Therefore, measuring the company’s ability to meet its interest payments, or understanding when payments are due, can have a significant impact on the cash flow<\/a> of the business.<\/p>\n\n\n\n

Short Term Debt<\/span><\/h2>\n\n\n\n

Current debts are obligations that must be paid within the next 12 months or a company’s current fiscal year. Short-term debts are also known as short-term liabilities. They can be seen in the liabilities section of a company’s balance sheet.
Short-term debt is in contrast to long-term debt, which is debt obligations that have a term of more than 12 months in the future.<\/p>\n\n\n\n

Short-term debt is most commonly discussed in relation to business loan obligations, but it can also be applied in relation to personal financial obligations.<\/p>\n\n\n\n

Types of Short-Term Debt<\/span><\/h3>\n\n\n\n

The first and most common type of short-term loan is a company’s short-term bank loan. These types of loans appear on a company’s balance sheet when the company is in need of quick funding to meet its working capital needs. It is also known as a “bank plug”, as a short-term loan is often used to bridge a gap between longer financing options.<\/p>\n\n\n\n

Another common type of short-term debt is business debt. This liability account is used to keep track of all outstanding payments to third-party providers and interested parties. When a company purchases a machine for $ 10,000 in short-term credit payable within 30 days, the $ 10,000 is classified as a liability.<\/p>\n\n\n\n

Commercial paper is unsecured short-term debt that is issued by a company and is generally used to fund accounts receivable and inventory and to cover short-term liabilities such as payroll. Its maturities are rarely extended by more than 270 days. Commercial papers are usually issued at a discount from face value and reflect current market interest rates. They are useful because these liabilities do not need to be registered with the SEC.<\/p>\n\n\n\n

Depending on how employers pay their employees, wages and salaries can sometimes be viewed as short-term debt. For example, if an employee is paid on the 15th of the month for work done in the previous period, a short-term debt account is created for the wages owed until they are paid on the 15th.<\/p>\n\n\n\n

Lease payments can sometimes also be recorded as current debt. Most leases are considered long-term debt, but there are leases that are expected to be repaid within a year. For example, if a company signs a six-month lease for office space, it is considered short-term debt.<\/p>\n\n\n\n

Short Term Debt Examples<\/span><\/h2>\n\n\n\n

Short-term debt can come in several forms. Some of the most common examples of short-term debt are:<\/p>\n\n\n\n