Federal debt: Overview, definition, and example
What is federal debt?
Federal debt refers to the total amount of money that the U.S. federal government owes to creditors. It’s made up of money borrowed through instruments like Treasury bonds, bills, and notes to cover budget deficits—when government spending exceeds tax revenue.
In simple terms, federal debt is the national “credit card balance” the U.S. government carries when it borrows to fund public programs, infrastructure, defense, and more.
Why is federal debt important?
Federal debt plays a big role in the economy—and it can affect interest rates, inflation, taxes, and even business confidence. For SMBs, it’s especially relevant when:
- Applying for government contracts or grants (you may need to certify you're not delinquent on federal debt)
- Monitoring federal fiscal policy that can impact taxes or spending
- Assessing creditworthiness if you're dealing with federally backed programs
In legal documents, federal debt can come up in certifications or compliance clauses, particularly for companies doing business with the government.
Understanding federal debt through an example
Let’s say your business applies for a federal loan guarantee. As part of the application, you’re asked to certify that neither your company nor any principal owner is currently delinquent on any federal debt.
That could include things like unpaid federal taxes, defaulted SBA loans, or unpaid federal student loans (if personally guaranteed by a business owner). Failing to disclose existing federal debt—or being behind on it—could disqualify you from getting the loan.
An example of a federal debt clause
Here’s how a clause mentioning federal debt might appear in a government loan or grant application:
“The Applicant certifies that neither it nor any of its principals is currently delinquent in repaying any debt owed to the federal government. Failure to provide accurate information regarding federal debt status may result in disqualification or legal penalties.”
Conclusion
Federal debt is a big-picture economic issue—but it can also show up in specific ways that impact small and mid-sized businesses, especially when working with government agencies or programs.
Whether you're applying for federal funding or just trying to stay compliant, knowing what federal debt means—and how it might affect your business—is key to avoiding issues and keeping your opportunities open.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.