When business secures debt, there are legal obligations between the parties. If the business does not fulfil those obligations, for example, making timely payments, the funder can seek legal remedy. The funder may repossess assets related to debt or file for liquidation of the business
Debt versus Liability A provider lends an amount to the business & there is obligation to repay the debt Liability – ALL obligations, something owed to someone Examples of Liabilities: Accrued expenses Trade creditors Generally debt has interest, liabilities may or may not have interest.
The business has an obligation to repay the debt (principal & interest) Repaying interest on the debt applies whether the business makes a profit or loss Interest on debt is an expense in the Income Statement