Legal Definitions - short-term debt

Short-term debt refers to financial obligations or money owed by an individual or organization that is expected to be repaid within a relatively short period, typically one year or less. These are immediate financial commitments that need to be settled in the near future, often as part of regular business operations or personal financial management.

• Example 1: Business Inventory Loan

  A small bakery needs to purchase a large quantity of ingredients and packaging supplies for a special holiday order. To cover these immediate costs, the owner takes out a bank loan that must be repaid in full within three months, using the revenue from the holiday sales.

  This loan is an example of short-term debt because the repayment period is explicitly set for three months, which is well within the typical one-year timeframe. The bakery has an immediate financial obligation to repay this money in the near future.

• Example 2: Corporate Operating Expenses

  A major technology company has a large payroll to meet at the end of the month. To ensure sufficient cash flow, it draws funds from its existing line of credit, which requires repayment of the drawn amount within 60 days.

  The funds drawn from the line of credit represent short-term debt. The company has a clear and immediate obligation to repay this borrowed money within two months, demonstrating a financial commitment due in the very near term.

• Example 3: Municipal Bridge Financing

  A city government needs to cover unexpected emergency repairs to a public utility system. While waiting for approved bond funds to be released in six months, the city issues short-term municipal notes that mature in five months to finance the immediate repair work.

  These municipal notes are a form of short-term debt. The city has borrowed money with the understanding that it must be repaid within five months, illustrating a temporary financial obligation to bridge a gap until longer-term funding becomes available.