Short-Term Debt

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Definition of 'Short-Term Debt'

Short-term debt is a liability that a company or individual must repay within one year. It includes accounts payable, accrued expenses, and short-term notes payable. Short-term debt is often used to finance working capital needs, such as inventory and accounts receivable.

There are several advantages to using short-term debt. First, it is typically less expensive than long-term debt. Second, it can be more flexible, as it can be repaid more quickly if needed. Third, it can help a company or individual to take advantage of favorable interest rates.

However, there are also some disadvantages to using short-term debt. First, it can be more risky than long-term debt. If interest rates rise, the company or individual may have to pay more to borrow money. Second, short-term debt must be repaid more quickly, which can put a strain on cash flow. Third, short-term debt may not be available when a company or individual needs it.

Overall, short-term debt can be a useful tool for businesses and individuals. However, it is important to weigh the advantages and disadvantages carefully before using it.

Here are some additional details about short-term debt:

* Short-term debt is often used to finance seasonal or cyclical businesses. For example, a retailer may use short-term debt to finance inventory purchases during the holiday season.
* Short-term debt can also be used to finance a company's growth. For example, a company may use short-term debt to purchase new equipment or expand its operations.
* Short-term debt is typically secured by assets, such as accounts receivable or inventory. This means that the lender has the right to seize the assets if the borrower defaults on the loan.
* Short-term debt is often issued at a floating interest rate. This means that the interest rate on the loan will fluctuate based on the prime rate or another benchmark rate.

Short-term debt can be a valuable tool for businesses and individuals. However, it is important to understand the risks and rewards before using it.

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