Debt ScheduleListed here are industry-specific financial model templates with a debt schedule included. A debt schedule forecasts a company's debt or the expected balance, repayment, and interest of a specific debt position.
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What is Debt Schedule
A debt schedule is a tool that lays out all of the debt a business has which helps to review, assess, and visualize the debts. By building a debt schedule, a business will be able to make strategic decisions on whether to pay off debt, acquire new debt, or create long-term projections for investors and creditors. A debt naturally requires periodic payment, otherwise, the interest will keep on increasing. A business debt schedule is basically a list of all the debts your business currently owes, such as:
- Loans – could be money, property, or other material goods that is given to another entity in exchange for future repayment of the loan value amount included with interest or other finance charges. Both parties (lender - borrower) must abide in mutual agreement before anything is given.
- Leases – mostly used for real-estate agreements, leases are legal and binding contracts that outlines the terms under which the owner of the property, the lessor, agrees to rent their property to the lessee or the tenant. It requires regular payments from the lessee for a specified number of months or even years. Both parties are subjected to consequences if they failed to uphold the legal contract.
- Contracts – could be verbal or written agreement by both parties. There are many types of contracts, especially when running a business. Most of it is written contracts to ensure the legality and also to bind a contractual commitment between the parties.
- Notes Payable – represents as a loan from a financing source such as banks which requires a formal loan agreement. It also stands for all the promissory notes issued / drafted to owed parties. In business terms, it is a note promising to repay the money owed in the future.
- Miscellaneous other Periodic Payables – other payables which guarantee both parties benefits and an agreement is made.
The short-term accounts payable and accrued liabilities are normally not included as for they are considered as regular expenses, not to mention the payroll, real-estate taxes, and other types of taxes, which are also expenses that are accrued and recorded in the balance sheet. Each debt listed in the business debt schedule should include all the needed details such as the following:
- Creditor / Lender
- Original amount of debt
- Current balance
- Interest rate
- Monthly payment
- Due date
- Maturity date
By laying down all the details on the debt schedule, as the business owner, you will be able to quickly assess an overview of all your business’ current debt, especially in cases where you make a decision such as either to take out more debt, which debt to repay first, or to renegotiate with the creditor/lender.
Components of a Debt Schedule
When making a debt schedule model, there are several components that are critical and needs to be included, such as:
- Projected Debt Balance – opening / current debt balance subtracted by repayments
- Debt Repayment Schedule – schedule determining which debt to repay first
- Debt Drawdowns – gradually issuing funds instead of taking out the full debt amount
- Interest Expense – expected interest expenses that will be accrued over time
- Closing Balance – ending balance at the end of the period
Every component is strictly tracked until maturity and comprised the full debt schedule model. But of course, there are important factors to consider as you build a debt schedule model, such as:
- Debt Maturity
A very important factor which every borrower that needs to consider. When taking out a loan, one must first look at the debt maturity date for this will determine how much interest you will have to give in, aside from the original amount owed. Since most debts are amortized and paid monthly, the longer the maturity of the debt, the lower the amount you will have to pay monthly, but this also means that the total sum of debt owed will be bigger due to the accrued interest added.
- Interest Rate
Another important factor that makes a debt, a liability. It helps remind a borrower that nothing is free especially when it involves money. Every debt will always be tagged with an interest rate which will be accrued every month or depending on the agreement between the lender and borrower. It is said that lower the interest rate, the better, but that is not always the case. A lender could extend the debt maturity date which basically means, the interest accrued will still be greater compared to a short-term date with a higher interest rate. So, the importance of calculating the interest rate is the biggest determining factor before signing the agreement.
- Floating or Fixed Interest
When acquiring debt, one must determine whether the debt has a floating interest rate or a fixed interest rate. These are two important factors which could be considered as troublesome, such as when the debt has a floating interest rate since it greatly affects the overall amount of debt annually. So, if there’s a fluctuation with the figures, the debt schedule model made will have to be updated again. On the other hand, if the debt has a fixed interest rate, it will provide a reliable calculation and a much more accurate projection. But this doesn’t mean that a floating interest rate is not a good choice, it is still a better choice for low or declining interest rate environment.
- Repayment Capability
Before even taking out a debt, one must ensure that as a borrower, you will have a steady stream of income to repay the debt off. This is actually the topmost priority to consider before even talking about debt. Any failure to comply according to the agreement will result in dire consequences such as forced liquidation and a loss of trust. Reputation is everything for a business, thus, it is important that the debt must be repaid before or until it reached its maturity date.
Uses and Significance of a Debt Schedule
Aside from keeping all your finances organized, there are several uses for a debt repayment schedule.
- Accurate bookkeeping and forecasting – with a detailed report of all the needed data of each debt, it will be easier to create a projection of how much you’ll have to stake out from your business as you set goals in the future too.
- Monitoring financial health – you’ll be able to monitor how your business is doing and also help direct your repayments to which debt must be repaid first.
- Determine if you can get a new debt – using the debt schedule will help you calculate if your business can handle another debt.
- Tracking repayment – since every debt will incur interest as time goes by, the debt schedule will help you not miss a payment and keep the interest added on a down low.
- Estimate total amount – the ability to estimate how much a business will have to pay once the debt matures.
- Tool for negotiation – the debt schedule can be used as an instrument to convince lenders to give you a new line of credit, negotiate better interest rates, attract potential investors, etc.