What Is Loan Default? | Business Lending Glossary
Loan default means failing to meet repayment obligations. Learn the consequences and how to avoid defaulting on business funding.
Definition
Failure to meet the legal obligations of a loan agreement, typically by missing payments.
Explanation
Default can be triggered by missed payments, breach of financial covenants, insolvency, or material misrepresentation on the application. Once in default, lenders may accelerate the full balance due immediately, pursue collateral, report to credit bureaus, or refer the account to collections. Cure periods — time allowed to remedy a default — vary by contract.
Example
A retailer misses three consecutive weekly ACH payments after a slow season, triggering a default clause that makes the entire remaining balance due immediately.
Why It Matters
Defaulting on a business loan can damage both business and personal credit, result in asset seizure, and make obtaining future financing extremely difficult for years.
Frequently asked questions
What should I do if I think I'm about to default?
Contact your lender immediately — most lenders prefer to restructure or defer payments rather than pursue collections, as recovery through litigation is costly and uncertain for both parties.
