Default
Failure to meet the legal obligations of a loan.
Loan default occurs when a borrower fails to make required payments or violates other loan terms. Default triggers serious consequences: the lender can accelerate the full balance due, seize collateral, report to credit bureaus, and pursue legal action. Most loans have a grace period before default is declared, and communication with lenders during financial difficulty can often prevent it.
Example
A business misses three consecutive loan payments and receives a default notice from the bank, which begins the process to seize the equipment pledged as collateral.
Why It Matters for Your Business
Defaulting on a loan damages your credit, triggers collateral seizure, and can result in personal liability if you signed a personal guarantee.
Practical Tips
- •Contact your lender at the first sign of payment difficulty—most will work with you on modified terms.
- •Review all loan covenants beyond just payment schedules to avoid technical defaults.
Related Terms
More Banking Terms
ACH
Automated Clearing House - an electronic network for financial transactions.
APR
Annual Percentage Rate - the yearly cost of borrowing including fees.
APY
Annual Percentage Yield - the real rate of return on savings including compound interest.
Bank Reconciliation
Matching bank statements with internal records to identify discrepancies.
Business Checking
A bank account designed for business transactions.
Related Financial Guides & Resources
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