What are non-current liabilities?

Published Thursday 23 July 2026

Table of contents

• What are non-current liabilities?
• Examples of non-current liabilities
• How to find non-current liabilities on a balance sheet
• Non-current liabilities vs. current liabilities
• Financial ratios that use non-current liabilities
• Why non-current liabilities matter for your business
• Manage your business finances with Xero
• FAQs on non-current liabilities

Key takeaways

• Non-current liabilities are debts or financial obligations your business doesn't expect to settle within the next 12 months. They're also called long-term liabilities and include items like business loans, lease agreements, and bonds payable.
• You'll find non-current liabilities in the second section of the liabilities portion of your balance sheet, listed below current liabilities. They give lenders and investors a clear picture of your long-term financial commitments.
• Key financial ratios, including the debt-to-equity ratio and interest coverage ratio, rely on non-current liabilities to measure your business's financial health and borrowing capacity.
• Tracking your non-current liabilities helps you plan for future cash flow needs, make informed borrowing decisions, and present a stronger financial position when seeking funding.

What are non-current liabilities?

Non-current liabilities are financial obligations your business doesn't expect to pay off within the next 12 months. They're also known as long-term liabilities and represent commitments that extend beyond your current operating cycle.

The 12-month threshold is what separates non-current liabilities from current liabilities on your balance sheet. If a debt or obligation is due within 1 year, it's classified as a current liability. Anything due after that falls into the non-current category.

These long-term obligations play a significant role in your business's financial health. They show how much of your operations are funded by long-term debt versus equity. As a key part of your overall liabilities, they affect how lenders and investors assess your ability to meet future payment commitments.

Examples of non-current liabilities

Non-current liabilities come in several forms depending on how your business is funded and structured. Here are the most common types you're likely to encounter.

Long-term loans

Long-term loans are borrowings from a bank or financial institution that you repay over a period longer than 12 months. They're one of the most common non-current liabilities for small businesses. For example, if you take out a 5-year loan to purchase new equipment, the portion of that loan due after the first year is classified as a non-current liability.

Bonds payable

Bonds payable are debt securities your business issues to raise capital from investors. The bondholder lends you money in exchange for regular interest payments and repayment of the principal at a set maturity date. While bonds are more common for larger companies, they illustrate how businesses can take on long-term debt to fund growth or major projects.

Lease obligations

Lease obligations represent the future payments you owe under long-term lease agreements for property, equipment, or vehicles. Under current accounting standards, most leases with terms longer than 12 months appear as liabilities on your balance sheet. For example, if you sign a 3-year lease on office space, the payments due beyond the first year are non-current liabilities.

Deferred tax liabilities

Deferred tax liabilities arise when your business owes taxes in the future due to timing differences between accounting rules and tax rules. This can happen when you claim accelerated depreciation on an asset for tax purposes but use straight-line depreciation in your financial statements. The tax you'll eventually owe on that difference is recorded as a deferred tax liability.

Pension obligations

Pension obligations are the amounts your business has committed to paying employees through a defined benefit retirement plan. These liabilities build up over time as employees earn their pension benefits. If you offer a pension plan, the projected future payments to retired employees represent a long-term financial commitment on your balance sheet.

Other non-current liabilities

Several other obligations can fall into the non-current category depending on your business. These include long-term warranty provisions, deferred revenue that won't be recognized for more than 12 months, and contingent liabilities tied to ongoing legal matters. Each of these represents a financial commitment that extends beyond your current operating period.

How to find non-current liabilities on a balance sheet

Non-current liabilities appear in the liabilities section of your balance sheet, directly below current liabilities. The balance sheet follows a standard structure: assets on one side, and liabilities plus equity on the other.

Within the liabilities section, obligations are typically listed in order of when they're due. Current liabilities (due within 12 months) appear first, followed by non-current liabilities (due after 12 months). You'll usually see a subtotal for each category and a total liabilities figure at the bottom.

Look for these characteristics when identifying non-current liabilities on a balance sheet:

• They have a due date or payment schedule that extends beyond 12 months.
• They're listed separately from current liabilities with their own subtotal.
• They often include a breakdown showing individual line items like long-term loans, lease obligations, and deferred tax liabilities.
• The current portion of a long-term debt (the amount due within 12 months) is reclassified as a current liability.

Non-current liabilities vs. current liabilities

The main difference between non-current and current liabilities is the timeframe for repayment. Understanding this distinction helps you assess your short-term cash needs versus your long-term financial commitments.

Here's how they compare across the key areas:

• Timeframe: current liabilities are due within 12 months, while non-current liabilities are due after 12 months.
• Purpose: current liabilities typically fund day-to-day operations (for example, supplier invoices and short-term credit lines), while non-current liabilities fund long-term investments like property, equipment, or business expansion.
• Examples: current liabilities include accounts payable, short-term loans, and accrued expenses. Non-current liabilities include long-term loans, bonds payable, and lease obligations.
• Cash flow impact: current liabilities affect your immediate cash flow and working capital. Non-current liabilities spread their cash flow impact over multiple years.
• Financial analysis: lenders use current liabilities to assess your short-term liquidity (can you pay your bills this year?). They use non-current liabilities to evaluate your long-term solvency (can you sustain your debt load over time?).

Financial ratios that use non-current liabilities

Several financial ratios use non-current liabilities to measure your business's financial health and risk profile. These ratios are often reviewed by lenders, investors, and stakeholders when evaluating your business.

The most commonly used ratios include:

• Debt-to-equity ratio: this compares your total liabilities (including non-current liabilities) to your total equity. A higher ratio means your business relies more on debt financing. For example, a ratio of 2:1 means you have $2 in debt for every $1 in equity.
• Debt ratio: this measures the proportion of your total assets that are financed by debt. It's calculated by dividing total liabilities by total assets. A debt ratio above 0.5 indicates that more than half of your assets are funded through borrowing.
• Interest coverage ratio: this shows how easily your business can pay interest on its outstanding debt. It's calculated by dividing your earnings before interest and taxes (EBIT) by your total interest expense. A higher ratio means you're in a stronger position to cover your interest payments.

Why non-current liabilities matter for your business

Tracking your non-current liabilities gives you a clearer picture of your long-term financial commitments and helps you plan ahead. As a small business owner, understanding these obligations directly affects several key decisions.

From a financial planning perspective, knowing when your long-term debts come due helps you forecast future cash flow. If you have a large loan repayment coming up in 3 years, you can start preparing now rather than facing a cash crunch later.

When you're considering new borrowing, your existing non-current liabilities play a big role. Lenders review your current long-term debt load before approving new financing. A business with manageable non-current liabilities is more likely to secure favorable loan terms and interest rates.

Investors and lenders also use your non-current liabilities to assess overall financial stability. A balanced mix of debt and equity signals that your business is using long-term financing strategically, not over-relying on borrowed money. Keeping your non-current liabilities organized and well-documented strengthens your position in any funding conversation.

Manage your business finances with Xero

Keeping track of your non-current liabilities alongside your other financial obligations is easier when everything sits in one place. Xero's cloud accounting software gives you real-time visibility into your balance sheet, so you can monitor your long-term debts, review financial ratios, and stay on top of upcoming payment commitments.

With automated bank feeds, built-in reporting, and easy access from any device, Xero helps you spend less time managing your books and more time running your business. Try Xero and get one month free.

FAQs on non-current liabilities

Here are some frequently asked questions about non-current liabilities and how they relate to your business finances.

What is the difference between current and non-current liabilities?

Current liabilities are obligations due within 12 months, such as accounts payable and short-term loans. Non-current liabilities are obligations due after 12 months, such as long-term loans, bonds payable, and lease agreements.

What are 5 examples of non-current liabilities?

Five common examples are long-term bank loans, bonds payable, lease obligations, deferred tax liabilities, and pension obligations. Each represents a financial commitment your business expects to pay over a period longer than 1 year.

Why are non-current liabilities important?

Non-current liabilities show your business's long-term financial commitments and affect how lenders and investors assess your financial health. Tracking them helps you plan future cash flow and make informed decisions about new borrowing.

How do non-current liabilities affect a company's balance sheet?

Non-current liabilities increase the total liabilities on your balance sheet and reduce your overall equity position. They also influence key financial ratios like the debt-to-equity ratio, which lenders and investors use to evaluate your business's financial stability.