Facility mechanics
Settlement differs by facility — term loan, CC, OD, LC and guarantee
A business rarely has one loan. It has a term loan, a cash-credit limit, possibly a bill discounting line, a letter of credit and a bank guarantee — each with its own security, its own default trigger and its own settlement logic. Treating them as a single number is the most common reason business settlement proposals stall.
Facility-wise settlement logic| Facility | Default trigger | Settlement treatment |
|---|
| Term loan | 90 days of unpaid instalment | Priced against the fixed asset securing it; the core of most settlement proposals. |
| Cash credit / overdraft | Out of order for 90 days, or drawing power shortfall | Stock and book-debt backed. Realisable value of current assets falls fast, which helps the discount. |
| Bill discounting / LC bills | Devolvement on the due date | Converts into a hard liability instantly; usually merged into the term exposure at settlement. |
| Bank guarantee | Invocation by the beneficiary | Becomes a funded liability on invocation. Cannot be settled while the guarantee is still live. |
| Working-capital demand loan | Non-payment on recall | Recall converts the whole limit into a demand; negotiate before the recall notice issues. |
| Guarantee-backed MSME credit | NPA plus cover invocation | The lender's CGTMSE recovery changes its incentive — settlement math shifts once cover is claimed. |
What each facility is secured by, what triggers default, and how it is usually closed in a settlement.
