Quick answer
Being in arrears means one or more loan repayments are overdue: the amount you should have paid by now hasn't been paid. Arrears can build up on a business loan, a lease, rent, tax or super. Short arrears are often fixable with a phone call; left to run, they can bring default interest, a default listing on your credit file and, eventually, the lender calling in the whole loan.
Key points
- Arrears is the overdue amount, not the whole loan balance
- Fees and default interest usually start straight away, even on a few days' arrears
- Under credit reporting rules, a default needs at least $150 overdue for 60 days and two notices
- Calling the lender early nearly always leaves more options open than waiting
Say a weekly loan repayment of $900 bounces on Monday and again the following Monday. The loan is now $1,800 in arrears. The balance on the loan hasn’t changed in any meaningful way, but the business is behind, and from that point the lender is watching.
Arrears is the gap, not the debt
Arrears is the total of scheduled repayments that should have been made and weren’t, plus any fees added for missing them. It’s a separate number from the loan balance. A business owing $80k can be $3k in arrears; clearing the $3k puts it back on track without touching the $80k.
The same idea applies well beyond loans. You can be in arrears on commercial rent, an equipment lease, an ATO payment plan or employee super. Each creditor has its own rules about what happens next.
What tends to happen, and when
Timelines differ between lenders and contracts, so treat this as a general picture rather than a rulebook.
| How far behind | What usually happens |
|---|---|
| A day or two | Direct debit dishonour fee; the lender may retry the debit or call |
| One to two weeks | Late fees and often default interest on the overdue amount; collections contact |
| More than 14 days | On consumer credit, the payment can be recorded as missed in repayment history, which stays for two years |
| 60 days or more | A default can be listed on a credit file if $150 or more is owing and the provider has sent two written notices spaced a month or more apart |
| Longer | Formal default notice under the contract; the lender may demand the full balance and move to enforce any security |
One detail worth knowing from the credit reporting rules: if you ask a credit provider for hardship assistance, it can’t list a default while it’s considering the request, and must wait 14 days after refusing it. Asking early protects you.
Why arrears hurt the next application
Lenders read your bank statements line by line. Repeated dishonours and catch-up payments tell an assessor that cash flow has been tight, even if the loan is now current. That’s why a business that recently cleared arrears may find banks cautious for six to twelve months, while some non-bank lenders will look past it with a good explanation.
If your lender has been chasing you for a while, it may help to see what refinancing options exist before the arrears grow.
Worked example: a café catching up
A Newcastle café has a $60k unsecured loan with weekly repayments of $650. A broken coffee machine and a quiet fortnight lead to three missed repayments: $1,950 in arrears, plus $180 in dishonour and late fees.
The owner rings the lender on day 18, explains the repair, and offers $400 extra each week for six weeks on top of the normal repayment. The lender agrees, waives some fees, and the café is current by week seven. No default is listed. Had the owner waited until the 60-day mark, the conversation would have been about a default notice instead.
What to do if you’re falling behind
- Work out exactly how much is overdue, including fees.
- Call the lender before the next repayment is due, with a specific offer.
- If several debts are behind, prioritise those with security attached and anything owed to the ATO or for super.
- Get free, confidential help from the Small Business Debt Helpline if you’re juggling several creditors.
- Consider whether a longer-term refinance would cut repayments to a level the business can genuinely carry.
Our guide on what to do if you can’t make a loan repayment covers the conversation with your lender in more depth.
Getting back on solid ground
Arrears are stressful, but they’re also very common, and a well-structured loan can clear them and give the business breathing room. If you own property, that equity may be the cleanest way out. Our form is brief, around sixty seconds of your time, and submitting it leaves no mark on your credit history. Your situation goes to one specialist, not a long chain of lenders, and that person calls to talk through what’s realistic. Please be upfront about the arrears on the form; it’s how we find a lender comfortable with your real position.
Frequently asked questions
Is being in arrears the same as being in default?
Not quite. Arrears simply means a payment is overdue. Default is a legal status under your loan agreement, triggered by missed payments or other breaches, that lets the lender take formal action. Most loans go into arrears before they go into default, and the agreement says when one becomes the other.
How long can a business loan be in arrears before the lender acts?
It varies by lender and contract. Some online lenders follow up a dishonoured direct debit within a day or two. Formal steps such as a default notice usually follow after several weeks of unpaid arrears. Read the default clause in your loan agreement so you know your lender's timetable.
Will arrears on a business loan show on my personal credit file?
It depends on the loan and whether you signed a personal guarantee. Repayment history on consumer credit such as personal loans and credit cards is reported, and a default can be listed after 60 days. Business lenders may also report commercial defaults to business credit bureaus.
Can I get a new business loan while I'm in arrears?
It's harder but not impossible. Mainstream lenders usually want arrears cleared first. Some private and property-secured lenders will lend specifically to clear arrears, provided there's security and a believable plan for repayments afterwards.
What should I say when I call my lender about arrears?
Explain what caused the shortfall, how much you can pay now, and when you expect to be back on track. Lenders respond far better to a specific plan, even a modest one, than to silence or vague promises.