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Debt

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In business, a debt is an obligation of one party to pay another, usually as repayment for money borrowed. The entity that owes the debt is the debtor. The entity that must be repaid to satisfy the debt is typically called the creditor or in specific cases, a debt holder. A debtor unable to satisfy debt obligations is insolvent. Debt is characterized by the type of debt instrument, such as a loan or a bond. In accounting, debt obligations are grouped by time until obligation maturity. A current debt, or current liability, is due in under a year, and a long-term debt, or long-term liability, is payable in a year or more. Secured debt has collateral pledged as security against default, and unsecured debt does not. A business debt that the business owner is not personally liable for is called nonrecourse debt. Senior debt is legally entitled to satisfaction ahead of other debt; the latter is called subordinated debt. The amount paid above the principal borrowed is called the interest on the debt.



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