What Are Current Liabilities?
Learn what current liabilities are, see common examples, and understand how they affect your business financial health and loan applications.
Current liabilities are debts and obligations your business must pay within one year. They represent your short-term financial commitments and directly impact your working capital and ability to take on new debt.
Common Types of Current Liabilities
Current liabilities typically include:
- Accounts payable: Money owed to suppliers and vendors for goods or services received
- Short-term loans: Business loans or lines of credit due within 12 months
- Current portion of long-term debt: The amount of long-term loan payments due within the next year
- Accrued expenses: Wages, taxes, and other expenses incurred but not yet paid
- Deferred revenue: Payments received for products or services not yet delivered
- Credit card balances: Outstanding business credit card debt
Current Liabilities on the Balance Sheet
On your balance sheet, current liabilities appear after current assets. They are listed by due date, with the most immediately due obligations first.
Lenders compare your current liabilities to your current assets to assess whether you can meet your short-term obligations.
Why Current Liabilities Matter for Loans
Lenders analyze your current liabilities to determine:
- Whether you can handle additional debt payments
- Your current debt load and payment obligations
- How efficiently you manage vendor relationships and payment terms
- The risk of cash flow problems in the near term
Working Capital
Working capital equals current assets minus current liabilities. Positive working capital means you have enough liquid assets to cover short-term debts. Negative working capital is a red flag for lenders.
Current vs. Long-Term Liabilities
Long-term liabilities are debts due more than one year out, such as the remaining balance on a 5-year equipment loan (minus the current year's payments). Lenders look at both, but current liabilities reveal your immediate financial pressure.
Managing Current Liabilities
Before applying for a loan, consider strategies to improve your liability position:
- Pay down high-interest short-term debt
- Negotiate extended payment terms with vendors
- Refinance short-term debt into longer terms if rates allow
- Avoid taking on new short-term obligations before applying
A strong current ratio (current assets ÷ current liabilities) of 1.5 or higher signals to lenders that you manage your short-term finances well.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
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