Short Term Debt Definition and Explanation

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Quick Definition

Company debt due within one year.

Explanation of Short Term Debt

Short Term Debt is listed on the Balance Sheet, and is often the debt the company has accumulated that is due in less than a year and that have interest applied to the debt. Short Term debt often carries the highest interest rates of all a company’s debt. Bank loans, notes commercial paper, and short term lines of credit are all examples of Short Term Debt.

Importance of Short Term Debt

Short Term Debt can be useful to a company to leverage its operations a little further, however companies relying too much on this can quickly get overwhelmed with debt, crippling its operations as it has to spend its earnings on debt and interest repayment instead of improving the company.

This is in sharp contrast to Long Term Debt, which is company debt that is due in more than one year. Investors and stakeholders need to be aware of the sources of both types of debt an how each one both burdens the company and has enabled the company to leverage that debt.