What is Underlying Debt?
Underlying debt refers to the total amount of debt held by a government entity, such as a state, county, or municipality. This includes loans and bonds on which the government has borrowed money to finance its activities. The underlying debt also incorporates current liabilities, accrued interest liabilities, and other long-term loans and liabilities specific to a single tax area or agency.
Significance of Underlying Debt
Underlying debt plays an increasingly significant role in credit status and access to capital for both large and small entities. Corporations may have a much easier time accessing credit when they can demonstrate that they understand the risk of taking on various levels of debt, as well as how to use it strategically. Small businesses, in particular, benefit when they show potential investors that they understand the implications of having credit security versus not having debt at all, since it can help them demonstrate creditworthiness and allow them to secure loans at lower interest rates.
Example of Underlying Debt
Common examples of underlying debt include mortgage, car loans, credit card debt, student loan debt, payday loans, and other forms of installment debt. Additionally, underlying debt can include any type of loan or bond that was issued by an individual, entity, or government to borrow money with the expectation of repayment.