Default on a business loan means a borrower has failed to meet one or more of the material obligations set out in the loan agreement. This triggers the lender's right to declare the loan immediately due and payable, enforce any security held, or take other remedies specified in the contract.
Events of default — what typically triggers one
Most business loan agreements list specific events of default. Common examples include:
- Missing a scheduled repayment or interest payment (non-payment)
- Breaching a financial covenant — for example, EBITDA falling below a stated floor
- A material misrepresentation in the application or ongoing reporting
- Insolvency, administration, or the company passing a resolution to wind up
- A cross-default — defaulting on another debt facility triggers default here too
Grace periods and cure rights
Many agreements include a grace period — a defined number of business days during which the borrower can cure a payment failure before the lender formally declares a default. If you anticipate a missed payment, contacting your lender before the due date is nearly always better than waiting. Proactive engagement preserves options; silence closes them.
After a default is declared
Once a lender exercises its acceleration right, the full outstanding balance becomes due immediately. Where security has been taken, the lender may appoint a receiver or administrator. A default may also be recorded at credit reference agencies, affecting future borrowing at company level.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: What does arrears mean on a business loan?, What is debt restructuring for a limited company?.