In lending, a default means the borrower has failed to meet the terms of the agreement, most often by not making repayments as agreed. It is a defined event under the contract, not just an informal description of being behind.
Default versus a missed payment
A single late or missed payment is not always a default. Most agreements set out what has to happen, and over what period, before the account is treated as in default. Default is a more serious stage, usually reached after attempts to bring the account back on track have not succeeded.
Why it matters
- It can affect how the lender manages and reports the account.
- It can influence your company's credit profile and future access to finance.
- It can change what the lender is entitled to do under the agreement.
How to avoid it
The single most useful thing you can do is talk to your lender early. If your company is heading toward difficulty, raising it before payments are missed gives far more room to agree a workable path than waiting until the account has already fallen behind. At Credicorp, hardship is handled differently from ordinary arrears, and we would always rather have that conversation sooner. Your own agreement sets out exactly what default means for your account.
See also: Glossary: default, Glossary: debenture, Glossary: amortisation.