Tasty Baking has until 2 p.m. Friday to either make a loan payment that was due Jan. 1 or reach a deal with its banks, giving the beleaguered maker of Tastykakes more financial breathing room.

The company had no comment Thursday. Neither did the lead bank, Citizens Bank of Pennsylvania.

One possibility Friday, industry observers said, is that the banks will grant a 30-day extension of the forbearance agreement disclosed last week, when Tasty said it was in a liquidity squeeze because of production problems at its new $78 million bakery at the Philadelphia Navy Yard.

That would give Tasty more time to find a buyer or refinance its debt, with the help of investment bankers at Janney Montgomery Scott L.L.C.

If Tasty fails to make the payment or fails to satisfy banks owed $81.5 million in some other way, it will be in default. That gives the banks - Bank of America, Sovereign Bank, and M&T Bank in addition to Citizens - the right to take over the company or force a sale.

Tasty could file for bankruptcy protection, but then it would face the difficult task of finding another lender to pay bills during bankruptcy.

Tasty's fate depends largely on lenders' patience.

Sometimes, there are participants in lending groups "who would rather be out than in. They've had it with that particular credit," said James Papada, retired chief executive of Pulse Electronics Corp., who has experience in such negotiations, both as a businessman and a lawyer.

The nostalgia so many Philadelphians feel for Tastykakes was a force for the company when it received $32 million in publicly subsidized loans to move from its aged plant on Hunting Park Avenue in North Philadelphia to its new facility.

This week, Gov. Rendell said he was willing to lend an additional $1 million to help with the company confront its financial crisis.

But it's not clear that Tasty's sentimental and political weight in the region will influence the banks, none of them with local headquarters.

Two of them, Citizens and Sovereign, are subsidiaries of banks in Europe, where there's no Tastykake nostalgia to bend the judgment of bank executives.