Deficiency Agreement

DEFINITION of 'Deficiency Agreement'

An arrangement in which a party provides a firm with funds to cover any shortfalls arising from capital or cash flow restraints, allowing the company to service its debt. A deficiency agreement will usually have a cumulative limit specified by the lending party.

BREAKING DOWN 'Deficiency Agreement'

Deficiency agreements allow firms to avoid the possibility of default during difficult periods. These types of agreements will usually involve parties that have an interest in the company and want to see it continue operations.

While a deficiency agreement will cover an entire company, it may be specified to protect a smaller aspect of the business. For example, a new project may have unstable cash flows and be unable to generate revenues until it reaches a certain level of operations. To prevent the project from failing, a deficiency agreement could provide it with enough cash until a revenue steam is established.

RELATED TERMS
  1. Deficiency

    Conceptually, the numerical difference between the amount of ...
  2. Deficiency Letter

    A letter, issued by the Securities and Exchange Commission (SEC) ...
  3. Asset Deficiency

    A situation where a company's liabilities exceed its assets. ...
  4. Deficiency Balance

    The amount owed to a creditor if the sale proceeds from the collateral ...
  5. Trading Partner Agreement

    An agreement drawn up by two parties that have agreed to trade ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities. ...
Related Articles
  1. Investing

    The LLC Operating Agreement Template, And Why You Need It

    For some business owners, creating an LLC offers the best of both worlds. But your state's rules might not suit your needs. Hence the Operation Agreement.
  2. Investing

    Cash Flow From Investing

    Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it.
  3. Managing Wealth

    Cash Flow Is King: How to Keep it Running

    Why is cash flow so important, and what steps can a business take to improve it?
  4. Investing

    Analyze Cash Flow The Easy Way

    Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors.
  5. Investing

    ISDA Master Agreement

    The ISDA Master Agreement is a document outlining the terms of an over-the-counter derivatives transaction between two parties. This document serves as a standard agreement in these transactions ...
  6. Investing

    Fundamental Case Study: Is Amazon's Cash Flow Actually Solid? (AMZN)

    Review Amazon's cash flow situation, including its free cash flow yield, operating cash flow from organic growth and cash flow from debt financing.
  7. Investing

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  8. Investing

    What's a Reverse Repurchase Agreement?

    A reverse repurchase agreement is the buyer side of a repurchase agreement (also called a repo).
  9. Investing

    Cash Flow On Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.
  10. Markets

    10 Ways to Improve Cash Flow in Construction

    Improving cash flow in construction requires some sector-specific strategies.
RELATED FAQS
  1. Under what circumstances would someone enter into a repurchase agreement?

    Learn when investors want to enter into a repurchase agreement, such as to gain quick access to liquidity and enjoy flexibility ... Read Answer >>
  2. What is the difference between cash flow and revenue?

    Understand the difference between cash flow and revenue as they relate to corporate accounting and the financial evaluation ... Read Answer >>
  3. What is each party's role in a reverse repurchase agreement?

    Learn about the role of each party in a reverse repurchase agreement transaction, and find out why it's different if the ... Read Answer >>
  4. Which terms should be included in a partnership agreement?

    Understand what specific terms should be included in a business partnership agreement and how each affects the partners in ... Read Answer >>
  5. What tax implications are there for parties involved with a reverse repurchase agreement?

    Learn about the tax consequences that the buyer can face as a result of a reverse repurchase agreement ("reverse repo") with ... Read Answer >>
  6. What's the difference between free cash flow and operating cash flow?

    Learn the difference between free cash flow and operating cash flow. Explore how analysts use earnings and cash flow when ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center