These two words are often used interchangeably, but they mark different points. Knowing the gap between them tells you how much room you still have.
Arrears
Arrears simply means your company has fallen behind on one or more scheduled payments. It is a state you can be in and step out of quickly by paying what is due or agreeing an arrangement. Being in arrears is not, by itself, a formal escalation.
Default
Default is a formal step we take only when arrears have built up and gone unaddressed despite our attempts to reach you. It is not automatic and it is not a punishment for one missed payment. Before it happens we will have tried to contact you and to agree a way forward. Talking to us, and keeping to any arrangement, is what keeps a company out of default.
Because the loan is to your company with no personal guarantee, a default sits against the business, not against the director as an individual.
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 default mean on a business loan?, What does 'in arrears' mean?, What happens if I break a payment arrangement?.