What is term debt?
submitted by Warner Brandes

mrfreely

It's debt that is paid all at once, after a certain period of time.

Frobert

Term debt is a type of loan that someone takes out and agrees to pay back over a set period of time (the term).

It's like borrowing money from a bank, but instead of paying it back all at once, you make scheduled payments. This would usually be monthly or quarterly. What makes it "term" debt is that it has a specific maturity date. Something like 5, 10, or 15 years, which is the date when the entire amount should be repaid.

As far as accounting goes, term debt is a liability. It's different from short-term debt, because that's due within a year, and term debt is longer than that.

A company might use term debt to finance a heavier purchase, like equipment, property, or a big expansion project.

cpa4work

When a business takes on term debt, it a commitment to pay long into the future, and it usually carries interest.

Some term debt has fixed interest rates, which stay the same over the life of the loan, and others might have variable rates that can fluctuate with market conditions.

Term debt will affect a company's leverage ratios and its creditworthiness. Investors and analysts look closely at the amount of term debt a company has. They want to see how manageable the payments are, and the interest rates involved. Also, the interest expense related to term debt is deductible for tax purposes, which can be a strategic benefit for the company.