Default is the point at which a borrower is treated as having seriously breached the terms of their agreement, usually by failing to make payments over a sustained period rather than missing one payment by a few days.
Default is not the same as a single missed payment
Missing one payment puts your account into arrears, which is a problem to address but is recoverable. Default is a more serious stage that follows continued non-payment and a lack of engagement. There is normally a path of contact and warnings before any account reaches that point.
- Arrears: one or more payments behind, but the agreement continues.
- Default: a formal recognition of serious, ongoing breach.
- The gap between the two is where engagement matters most.
How to avoid it
The most reliable way to avoid default is to talk to us early and agree an arrangement before arrears build. A company that is engaging and keeping to a plan is not heading towards default, even if it is paying less than usual for a while.
Because Credicorp lends to limited companies and LLPs for business purposes, a default relates to the company's agreement. We do not take personal guarantees from directors, so default sits with the company. If you are worried about reaching this stage, contact us straight away.
See also: Glossary: default (business lending), Glossary: forbearance, Glossary: vulnerability.