Glossary - Non-Performing Asset
A Non-Performing Asset (NPA) refers to a classification for loans or advances that are in default or in arrears on scheduled payments of principal or interest. In most cases, an asset becomes non-performing when loan payments have not been made for a period of 90 days. However, this duration may vary depending on regulatory policies. NPAs signal a reduction in cash flow for lenders and indicate financial distress for borrowers.
Also known as
- Non-Performing Loan
- NPL
Use cases examples
- Annual Report: The annual report to shareholders includes a section on the company's financial health, delineating the total amount of Non-Performing Assets and its impact on the company's balance sheet.
- Loan Agreement: Within the loan agreement, there is a specific clause detailing the actions to be taken should any portion of the loan become a Non-Performing Asset, including the process for restructuring the loan.
Considerations for investors
- Investors should assess the NPA levels of entities they are considering investing in, as high levels of NPAs could indicate underlying financial issues.
- Venture capital firms and family offices should factor in the recovery process and time frame of NPAs when calculating the potential return on investment.
Considerations for founders
- Founders should understand the implications of NPAs on their business's financial health and credit rating.
- It's vital for founders to have strategies in place for managing debt and avoiding the classification of any company assets as NPAs.
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