A shortfall agreement is an agreement between two or more companies by which one company agrees to pay for the shortfall amount with regard to a loan agreement or any other investment deal. The term shortfall means that amount of funds which is lower than required capital. So if a company is not able to pay the total amount for repayment of loan or investment in a project, another company ensures that it will pay it the shortfall amount.
This is like a loan which will be used by the company for the required purpose and return it will provide a security or collateral in case of any future default. Such an agreement is helpful when a firm requires a large amount of funds urgently and other companies help it to make up for the short fall. The agreement must clearly mention the names and contact details of the parties involved, the amount given, any rate of interest or security etc.
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