Short-term notes are debt obligations that are scheduled for repayment within a relatively short period of time. Notes of this type may be in the form of municipal bonds, personal loans, and even financial documents issued by state and national governments. There are several advantages associated with the use of short-term debt notes, with both the lender and the debtor usually benefiting from the transaction.
Municipal bonds are one of the more common types of short-term notes. Bonds of this type are often issued as a means of securing funds today that can be used for some sort of civic project. The duration of the bond is usually determined by when the municipality expects to have the funds in hand to pay off the debt obligation. Normally, the repayment plan calls for issuing a maturity date that will occur shortly after the collection of taxes or some other form of revenue that the city expects to utilize in retiring the debt.
In like manner, businesses sometimes make use of short-term bank notes to fund a project, such as launching a new advertising campaign or developing a new product. Short-term corporate notes are structured to not come due until the project begins to generate revenue, making it possible to pay off the balance of the loan without touching the other assets of the company. By using this strategy, the business does not have to divert assets or make any long-term financial obligations in order to fund the project.
In the United States, short-term Treasury notes are another example of these types of notes. In general, the notes are scheduled to mature anywhere from three months to a year. In the interim, the short-term notes generate considerable revenue that can be used for a wide range of government functions and projects.
Both investors and the issuers of short-term notes benefit from this type of financial instrument. For the investor, the rate of return is usually somewhat higher than other investment options carrying a similar degree of risk. Issuers have the advantage of obtaining much needed revenue today, with the luxury of paying off the debt obligation on a schedule that is convenient and will not cause disruption with any other operations currently maintained by the entity. In general, short-term notes will not have a maturity or due date past two years, although some financial professionals will classify loans and bonds that mature within five years as a short-term debt instrument.
