Business

What Is Business Debt?

Affordable Liquidation Services refers to any indebtedness that is incurred by a business to run it. This can include loans, debts from credit cards and unsecured lines of credit, letters of credit, bankers’ acceptances and surety bonds, interest rate swap agreements, foreign currency exchange contracts or other hedging agreements. It excludes trade payables, payroll and taxes as those expenses are accounted for on a company balance sheet.

The distinction between personal debt and business debt is easily blurred, but a quick search of the Merriam-Webster dictionary will find that “business debt” is defined as any debt that is not consumer debt and not secured by personal assets (i.e., Mom and Dad’s money for your cupcake startup). Business debt can be a positive factor when it accomplishes goals, spurs a company forward or provides necessary fuel to build a business.

Tackling Business Debt: Strategies for Financial Recovery

When it isn’t used effectively, however, debt can weigh down a company and limit its ability to grow. For example, a company might use short-term debt to buy inventory, solve a cash flow problem, or make an acquisition. It might also use long-term debt to acquire capital equipment, expand facilities or enter international markets.

As a business owner, you can control how much debt your company has by tracking and monitoring it using accounting software. A debt schedule can help you make better borrowing decisions by providing accurate data on the original amount of each debt, its origination date and current balance. It can also help you calculate a debt service coverage ratio and ensure that taking on new debt would not push the company over an acceptable limit.