Deficiency agreements allow firms to avoid the possibility of default during difficult periods. These types of agreements will usually involve parties that have an interest in the company and want to see it continue operations.
While a deficiency agreement will cover an entire company, it may be specified to protect a smaller aspect of the business. For example, a new project may have unstable cash flows and be unable to generate revenues until it reaches a certain level of operations. To prevent the project from failing, a deficiency agreement could provide it with enough cash until a revenue steam is established.