Short-term loan
In one sentenceFinancing the business gets from a bank or a finance company that is due for repayment within a year or less, shown among current liabilities.
Simply put
It is used to finance inventory or collection gaps, not to buy long-lived assets. If the loan is long-term, the part due within the next year is also shown as current.
In the Kingdom many banks provide financing in Sharia-compliant forms such as Murabaha, and its cost is recorded as finance costs over the financing period, not in one go.
Worked example
A trading business got financing of 300,000 SAR for six months, at an annual cost we assume to be 8% for illustration only.
Financing amount300,000
Assumed annual cost8%
Term6 months = 6 ÷ 12 of a year
Finance cost = 300,000 × 8% × 6 ÷ 1212,000 SAR
Don't confuse it with
Bank overdraftA loan is a set amount with a repayment schedule, while an overdraft is a negative balance that moves with the account.