Right of Setoff
A lender's contractual right to apply funds a business holds with that same lender (such as a deposit account) against an outstanding debt owed to it.
If a business has a checking or deposit account with the same institution that holds its loan, a right of setoff can let that lender apply the account balance directly against a missed payment or default, without a separate court process.
This right is typically spelled out explicitly in a loan or account agreement, so understanding whether it applies is relevant when a business banks with the same institution that’s extending it financing.
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