The term ‘debt’ typically means anything, including money and objects, that is either owed and/or due to be repaid. Here, the parties to any debt are referred to as lenders or ‘lending agencies’ i.e. those people or institutions who give the loan while borrowers are those people who actually receive the amount that has been loaned.
Debt is generally used by both corporate entities as well as various private parties as a means of making any sort of really big purchase. Individuals or corporations making this purchase would not have been able to pay for it with their current and existing financial resources.
o The History of Debt
Ever since the dawn of human civilization, debt has emerged as the very first type of commercial activity in history. It would not be wrong to state that debt has been the harbinger of civilization, even as it exists today. In fact, debt existed long before money and coins had been invented as instruments of exchange and measure of wealth. It was debt that had been freely used as a form of trade and as of now there is a whole lot of anecdotal evidence that it just might even have existed as a means of trade at least three thousand years before the invention of coinage.
o Monetary Debt
A debt agreement typically allows the borrowing party to take a monetary loan with a caveat that the same should be paid back in full, during a stipulated period of time with interest.
As the name implies, interest is the basic cornerstone of all commercial debts and loans. In fact, it is the primary reason due to which the lender actually gives the money to the borrower. The amount that has been loaned will be paid back with an additional amount that is the charge or fee for the amount of money that has actually been loaned.
o Bad Debt
Bad debts generally signify those loans that have not been paid or will not be paid in the future. The borrower may ‘default’ or just simply refuse to make payments on both the principal, as well as the accumulated interest of the loan.
This may be due to a large number of reasons that may range from insolvency all the way to outright fraud. In either case, the lender is incapable of receiving the amount he has loaned to the borrower and he might be forced to write off the loan altogether in the future. In such a case, short of legal relief, the lender will not be able to receive either the interest or the principal amount.