Every player has a credit limit. As your net wealth and profit increases, so does your credit limit.
You can spend money on transport infrastructure, buildings, earthworks, vehicles, etc., even if you have no cash to spare, provided that you remain wihtin your credit limit. You cannot spend money on anything that would mean going into debt beyond your credit limit (the one exception is the remove tool, which can be used all the time to take away costly infrastructure, even if using it would exceed your credit limit).
Whilst you are in debt, you have to pay interest. The default amount is 10% per month, but this can be adjusted in simuconf.tab. Interest in Simutrans-Extended is compound interest: that means that you pay interest on the total amount that you owe, and any new interest payments are added to the sum of the debt.
If you are in debt for more than three consecutive months, your credit limit is slowly adversely affected: banks only want to lend money to people who will pay it back on time. Once you have cleared your debt, your credit limit will slowly recover - if you stay in the black.
If your debt exceeds your solvency limit, then you become insolvent. Insolvency in Simutrans-Extended takes two forms: administration and liquidation.
When you first become insolvent, you go into administration. This is your final chance to save your company. You can continue to operate your company as normal in this period (subject to the credit limit), but you will be warned that you are in administration at the beginning of every month. Additionally, in a multi-player game, you can be taken over involuntarily by another company if you are in administration. You can leave administration by improving your credit balance so that it exceeds your solvency limit.
If you have been in administration for more than 12 months, you go into liquidation. For you, this is the end of the game. All of your vehicles will be sent back to their depots and you will permanently lose the ability to control your company. In a multi-player game, your company's assets remain available for a further 12 months to be purcahsed as a whole by way of a takeover, failing which they will all be scrapped and the liquidation of your company will be complete.
Some of the behaviour defined here can be affected by settings in the simuconf.tab file located in the /simutrans/config/ directory. This text explains the default settings: the comments in simuconf.tab explain all the permutations.