Debt Overhang

You know in movies when someone almost drives off a cliff, but stops just before the fatal plunge, leaving the car teetering precariously half on and half off the edge, where any slight weight shift (a bird landing on the hood, etc.) could push it into the abyss? Thelma and Shmoop comes to mind.

Same concept as the debt overhang.

If a company (or a person for that matter) has so much debt that no one will loan it additional money, then that constitutes a debt overhang. Basically, bankers judge that the firm is the car hanging over the edge of the cliff; one more dollar of debt dropped on the hood and down it goes.

This can lead to a situation where even a smart loan (for a sure-fire product launch or a pays-for-itself technology upgrade) won't get approved. At that point, it becomes very difficult for the company to accelerate growth, because the debt overhang cripples the firm's ability to secure additional loans. Debt death spirals ensue. And there's a car. And a cliff.