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Short-term debt is debt a company must pay back within one year.

Short-term debt appears on the liabilities portion of a balance sheet. It’s usually comprised of short-term bank loans, including bridge loans and credit card charges. Short-term debt is one factor that can be used to determine a company’s financial health.

For example, a local furniture seller has taken out a bridge loan to cover payroll while it awaits payment for couches it sold. Its owner also used his credit card to pay for supplies he needed to remodel the front showroom. These loans are both short-term debt.

The amount owed to cover the bridge loan and credit card bill exceeds the amount of cash and cash equivalents the business has. This is a sign the company could be in poor financial health. It may need to take on additional debt to make ends meet.

Short-term debts are due within a year, but portions of long-term debt may be included in the account. This portion pertains to payments that must be made on any long-term debt throughout the year. For example, if a long-term loan to pay for the furniture’s delivery truck has less than a year worth of payments remaining, it’s considered short-term debt.

For individuals, short-term debt can include credit cards, personal loans, payday loans and store charge cards.

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