BUSINESS DEBT AND PERSONAL DEBT – HOW DOES IT ALL WORK?

When businesses take on debt, it's usually referred to as business debt. Business debt can come in several forms, including loans, lines of credit, and credit cards. Business debt is used to finance operations, growth initiatives, and capital expenditures for the company.

The main types of business debt are:

Business loans:

These are long-term loans that businesses take out for large purchases like equipment, property, or vehicles. Business loans often have fixed interest rates and payment schedules.

Lines of credit:

Lines of credit are short-term loans that businesses can draw from as needed. They function like credit cards with a credit limit.

Credit cards:

Many businesses use corporate credit cards to cover expenses like supplies, travel, and utilities. The credit limit is determined by the business's creditworthiness, and interest rates tend to be higher than for loans.

Accounts payable:

This represents money a business owes to its vendors for goods or services purchased on credit. Accounts payable are short-term liabilities and must be paid within a certain time frame, often 30-60 days. When a business takes on debt, it becomes a liability on the company's balance sheet. The debt obligations must be repaid according to the loan terms from business cash flows. If a business is unable to repay its debts, it could face bankruptcy or other legal actions from creditors.

Personal debt

On the other hand, includes things like mortgages, auto loans, student loans, and credit cards that individuals take on for personal use. Personal debt does not appear on business financial statements. However, high personal debt loads can impact an individual's creditworthiness and ability to take on additional debt. Personal debt obligations also consume a portion of an individual's