Posted in Finance, Accounting and Economics Terms, Total Reads: 308
Definition: Toggle Note
Toggle Note, also referred to PIK (payment in Kind) loan, is a type of unsecured loan in which payment towards loan repayment can be delayed in exchange for increased interest rate in subsequent payments/installments.
Toggle note is an efficient way to manage loans in case there is cash crunch. The creditors also have nothing to lose because the subsequent payments would cover the loss in current payment.
Example: If a company had take a loan which is a toggle note and due to recession, the revenue and profits have fallen. Rather using the minimal cash to pay off loan they can delay the payment with rise in interest rate and use this cash as means to keep the company running, pay salaries and sustain.
After the recessionary period is over and profits are back, they can pay off the loan.