Long Term Liability – What is it? What does it mean?

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Long Term Liability

A long term liability is defined as a financial obligation that is not due within the next 12 months. In other words, it is an amount of money that a business owes which will not need to be paid back for at least a year. There are many different examples of long term liabilities, but some of the most common ones for small businesses include bank loans, mortgages, and leases. 

Despite the fact that long term liabilities are not due immediately, they can still have a significant impact on a small business's cash flow. This is because, in order to make the payments on time, businesses often need to set aside money each month which could be used for other purposes. As a result, it is important for small businesses to carefully consider whether taking on any new long term liabilities is the right decision for them. 


Definition of a Long Term Liability

A long term liability is defined as any financial obligation which is not due within the next 12 months. In other words, it is an amount of money that a business owes which will not need to be paid back for at least a year. There are many different examples of long term liabilities, but some of the most common ones include bank loans, lines of credit, and leases. 


The Importance of Long Term Liabilities

Despite the fact that long term liabilities are not due immediately, they can still have a significant impact on a small business's cash flow. This is because, in order to make the payments on time, businesses often need to set aside money each month which could be used for other purposes. As a result, it is important for small businesses to carefully consider whether taking on any new long term liabilities is the right decision for them and their current financial situation. 

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Different Types of Long Term Liabilities

There are many different types of long term liabilities that small businesses can incur. Some of the most common examples include bank loans, lines of credit, and leases. 


Bank Loans

Bank loans are one type of long term liability that small businesses may take on in order to finance their operations or expand their business. These loans typically have terms of five years or more and require monthly payments in order to be repaid. 


Lines of Credit 

Lines of credit are another type of long-term liability that can be useful for small businesses who need access to capital but do not want to take out a traditional loan. Lines of credit typically have lower interest rates than loans and can be used as needed without requiring monthly payments. However, lines of credit must be repaid within a certain period of time or the outstanding balance will become due immediately. 


Leases 

Leases are agreements between two parties in which one party agrees to allow the use of their property by another party in exchange for regular payments over a specified period of time. Leases can be either short-term or long-term depending on the length of time specified in the agreement. For example, an office lease would typically be considered a long-term lease while an apartment lease would typically be considered a short-term lease. 


Small businesses in the UK often need to take out long-term liabilities in order to finance their operations or expand their business. These obligations can have a significant impact on cash flow because businesses need to set money aside each month in order to make the payments on time. Therefore, it is important for small businesses owners to carefully consider whether taking on any new long-term liabilities is the right decision for them before making any commitments. Long-term liabilities come in many different forms including bank loans, lines of credit, and leases agreement so it is important for business owners understand all their options before deciding what type best suits their needs.


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About the Author

Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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