Why can term loans be less favorable when company balance sheets are weak?

When a company's balance sheet is weak, lenders view it as a higher risk due to potential concerns about the company's ability to repay loans. In such situations, term loans may not be readily available to the company. Lenders often assess the creditworthiness of a borrower based on their financial health, including their debt levels, income stability, and overall asset base. A weak balance sheet signals to lenders that the company may struggle to meet its financial obligations, leading them to impose stricter lending criteria or to decline the loan application altogether.

In contrast, the other choices may contain aspects that might apply in various contexts but do not directly correlate to the immediate availability of term loans under weak financial conditions. For instance, while large upfront payments can be a barrier, they do not specifically relate to the strength of the balance sheet; instead, they depend more on the type of financing or deal structure being discussed. Understanding this context around credit availability helps clarify why weak balance sheets can significantly limit access to term loans.