Debt Trap

Debt Trap A debt trap is something a highly leveraged company is likely to fall into if its performance is not satisfactory. Servicing or paying interest on a large debt may not leave the company with any profit or operating cash, which in turn will lead to further borrowing. Unless there is a dramatic turnaround in the company’s profits, the trap closes on it, forcing liquidation. Countries which borrow heavily, often fall into this trap, and may have to accept humiliating conditions proposed by lender countries for further loans.

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