Updated from 2:42 p.m. EDT

Shares of SCO Group ( SCOX) tumbled 8% on news that a major investor wants to call in a big loan.

In recent trading the stock was down 77 cents to $8.89.

In October, BayStar Capital bought a $50 million convertible note from SCO, which on conversion would have given the fund nearly 3 million shares of SCO stock, or 17.5% of shares outstanding.

However, SCO said it received a letter from BayStar Capital on Thursday, saying the fund now wants SCO to "immediately redeem" 20,000 convertible notes.

BayStar said that SCO didn't live up to the terms of a legal agreement between the two firms.

SCO said it's still investigating BayStar's complaint, but doesn't believe it needs to redeem the shares.

"I look at this as bad news for SCO," said Dion Cornett, an analyst for Decatur Jones Equity Partners - Soleil. "I don't think BayStar is going to be very successful in getting their money back. It's very difficult for a private equity investor to force a redemption on a company that doesn't want to redeem. But it makes it very difficult for SCO to raise future financing."

SCO will certainly need lots of money if it wants to fight the likes of massive IBM, he noted. "I think they'll need all the $65 million they have in the bank to fund this fight. This is going to be a multi-year, very protracted lawsuit, if it's not dismissed."

Reflecting SCO's diminutive size, Cornett is the only sellside analyst covering the stock, according to Thomson First Call.

The convertible debt placement gave a sizeable boost to SCO's ongoing legal battle against IBM, bringing the company's cash balance to $61 million. Last year SCO sued IBM over the intellectual property rights to Linux.