Debt warnings may soon hinge on one key event: A lender demanding payment

Companies may soon have a clearer test for deciding when certain long-term debt must be treated as coming due soon: Has the lender actually demanded payment? 

The Financial Accounting Standards Board (FASB) voted May 27, 2026, to draft a proposal that would change how public and private companies classify some debt on their balance sheets. The proposal focuses on loan terms known as subjective acceleration clauses (SACs), which let a lender demand early repayment if it decides a borrower’s financial condition has worsened.

repayment if it decides a borrower’s financial condition has worsened. 

Today, companies may have to judge whether a lender is likely to use one of those clauses. If that risk is more than remote, the company may have to classify long-term debt as current, meaning it appears due within a year. 

FASB’s proposal would remove that judgment call. A subjective acceleration clause would affect classification only if the lender actually demands repayment. 

In plain terms: No demand, no debt alarm. 

The change matters because debt classification can influence how financially strained a company appears. Debt listed as current can signal near-term cash pressure. Debt listed as noncurrent suggests the company has more time to repay. 

FASB Chair Richard Jones said the project is meant to “remove some subjectivity from a very subjective model.” 

Board members said the current rules are difficult to apply and may not reflect how these loan clauses work in practice. Christine Botosan said subjective acceleration clauses are common but rarely enforced. 

“SACs are rarely enforced,” Botosan said. “Entities really aren’t following the guidance as it is written today for the most part.” 

Under the proposal, a warning letter or notice of noncompliance from a lender would not automatically force a company to move long-term debt into the current category. The key event would be an actual demand for repayment. 

Under the proposal, a warning letter or notice of noncompliance from a lender would not automatically force a company to move long-term debt into the current category. The key event would be an actual demand for repayment. 

Vice Chair Hillary Salo said there is a “meaningful distinction” between a lender notifying a borrower of noncompliance and demanding repayment. 

Frederick Cannon put it more directly: “A demand is a demand.” 

Why investors would still get more information 

The proposal would not simply let companies keep more debt classified as long-term without explanation. FASB also plans to require more disclosure when borrowers run into debt trouble. 

That disclosure could cover the event that caused the problem, the amount of debt affected, any lender notification and any waiver terms. 

Jones pushed for the disclosure requirements to go beyond subjective acceleration clauses. He said investors need liquidity-related information when companies face defaults, covenant breaches or other serious debt issues. 

“I do think that liquidity-based disclosures are the thing that after the fact, we look really bad when we don’t have them,” Jones said. 

He added: “I was actually shocked we didn’t require these all along.” 

The board agreed to seek public comment on broader debt disclosures. 

For investors, that means the proposal has two parts: companies may not have to classify debt as current until a lender demands repayment, but they may have to say more when debt problems arise.

Refinancing change could be more controversial 

FASB also voted to propose a related change involving short-term debt that a company expects to refinance. 

Under current rules, a company can sometimes classify short-term debt as long-term if it plans and is able to refinance the debt on a long-term basis. But that classification can be blocked if the refinancing agreement can be canceled for subjective reasons, such as the lender deciding the borrower’s condition has worsened. 

The proposal would change that. A subjective cancellation clause would not automatically prevent a company from treating the debt as long-term. 

Jones and Cannon objected, warning that the change could let companies present debt as long-term even when the lender may still be able to cancel the financing commitment. 

Cannon said investors should require a “pretty high bar” before short-term debt is treated as refinanced on a long-term basis. 

“I’m hesitant to do this,” Cannon said. “I would not do this.” 

Jones said the refinancing change “goes a little too far.” 

That issue may draw the most scrutiny during the comment period because it raises a basic question: Does the company truly have long-term financing available, or only a commitment the lender may still be able to withdraw? 

What happens next

The proposal would apply to all companies and would be used going forward, rather than requiring companies to restate prior periods. Early adoption would be allowed. 

FASB staff will draft the proposed accounting standards update, which will be issued for a 60-day public comment period.