why companies use long term debt instruments
a company takes on debt to obtain immediate capital for example startup ventures require substantial funds to get off the ground this debt can take the form of promissory notes and serve to pay for startup costs such as payroll development ip legal fees equipment and marketing mature businesses also use debt to fund their regular capital expenditures as well as new and expansion capital projects overall most businesses need external sources of capital and debt is one of these sourceslong term debt issuance has a few advantages over short term debt interest from all types of debt obligations short and long are considered a business expense that can be deducted before paying taxes longer term debt usually requires a slightly higher interest rate than shorter term debt however a company has a longer amount of time to repay the principal with interest financial accounting for long term debta company has a variety of debt instruments it can utilize to raise capital credit lines bank loans and bonds with obligations and maturities greater than one year are some of the most common forms of long term debt instruments used by companies all debt instruments provide a company with cash that serves as a current asset the debt is considered a liability on the balance sheet of which the portion due within a year is a short term liability and the remainder is considered a long term liability companies use amortization schedules and other expense tracking mechanisms to account for each of the debt instrument obligations they must repay over time with interest if a company issues debt with a maturity of one year or less this debt is considered short term debt and a short term liability which is fully accounted for in the short term liabilities section of the balance sheet 