Quick answer
A default is a failure to keep a promise in a loan contract. Most often it's a missed or late repayment, but breaking another term, such as letting insurance lapse or falling behind on tax, can also count. A default can trigger default interest, a demand for the full balance and action against security, and may be recorded on a credit file, where it stays for years even after it's paid.
Key points
- Monetary defaults are missed payments; non-monetary defaults are broken promises of other kinds
- One default can trigger others through cross-default clauses in different loans
- Banks that follow the Banking Code must give small businesses notice and a chance to put things right
- Talking to the lender before a payment is missed is the single most effective step
A default is what happens when a borrower doesn’t do something the loan contract says it must. The obvious example is a repayment that doesn’t arrive on time. Less obvious examples hide in a clause usually headed “events of default”, and it’s worth reading that clause before you sign rather than after something goes wrong.
The word also has a second, related meaning: a default listing, which is the record of an unpaid debt on a credit file.
Two kinds of default
| Type | Common examples | How lenders usually respond |
|---|---|---|
| Monetary | A missed repayment, a dishonoured direct debit, a balloon not paid at the end of the term | Reminders, then default interest and formal notice if it isn’t fixed |
| Non-monetary | Late annual accounts, a broken loan covenant, lapsed insurance, selling secured assets, unpaid tax debts | A request to fix it within a set time; enforcement is less common if the loan is still being repaid |
Many business contracts also contain a cross-default clause. Default on one facility and every other loan with a cross-default clause may be in default too, even when those repayments are perfectly up to date.
What can a lender do after a default?
It depends on the contract and on who the lender is. In rough order of seriousness:
- Charge default interest and fees on the overdue amount or the whole balance.
- Send a formal default notice setting a deadline to fix the breach.
- Use an acceleration clause to demand the entire loan at once.
- Act on the security: repossess equipment, call on a director’s personal guarantee, or take steps toward selling mortgaged property.
Banks that have signed up to the Banking Code of Practice have extra commitments to small business customers, including giving written notice and a reasonable chance to remedy a default before enforcing, and limits on acting over non-monetary breaches. Non-bank lenders aren’t bound by that code, so their contract terms carry more weight.
How does a default reach a credit file?
There are two routes. A director who personally guarantees a loan can receive a default listing on their own credit file. Under the consumer reporting rules, that generally needs an overdue amount of at least $150, more than 60 days late, with written notices first, and the listing then stays for five years.
Businesses can also be recorded on commercial credit files. One Australian quirk involves the tax office. A company or trust owing the ATO $100,000 or more, with the debt over 90 days old and no payment plan or other engagement in place, can have that debt passed on to the credit bureaus. A lender pulling the business’s file then sees it alongside any other default.
Got a default on file but still need funding? Share the background with us for a straight answer on where you stand.
Example: catching it early
A Sunshine Coast café owner sees a slow winter coming and knows the $2,400 monthly equipment repayment will bounce in August. In July they phone the lender, describe the usual winter slowdown and request two months of reduced payments. The lender agrees and documents a short variation. No missed payment, no default notice, no listing. Had they said nothing, the same shortfall would have produced dishonour fees, default interest and possibly a listing on the guarantor’s file.
The lesson generalises: lenders have far more room to help before a default than after it. Our page on arrears covers what happens once payments have already fallen behind.
Rebuilding after a default
A default isn’t the end of borrowing, but it narrows the field for a while. Banks tend to be cautious, so if you fit their criteria the offer is worth taking seriously. If the bank has already said no, specialist lenders look at the story behind the default. See business loans with defaults and, once it’s cleared, business loans after paid defaults.
Tell us what the default was, when it happened and where it stands now. Enquiring doesn’t put a fresh mark on your credit file, which matters when it already carries one, and the form is about a minute’s work. We keep it in-house rather than blasting it across the lending market, and the person who reviews your history is the one who phones you about it. Be upfront about the default on the form; it lets us steer you to lenders who’ll actually consider it.
Frequently asked questions
How many missed payments before a business loan is in default?
Technically, many contracts treat a single missed payment as a default from the day it's due. In practice, most lenders send reminders and allow a short period to catch up before taking formal steps. Your contract's events of default clause sets out exactly what counts.
How long does a default stay on a credit file?
Under Australia's consumer credit reporting rules, a default listing generally stays on an individual's file for five years, even once paid; the status just changes to paid. That matters to business owners because directors who guarantee a loan can be listed personally.
Can I get a business loan with a default?
Often, yes. Specialist and property-secured lenders look at why the default happened, whether it's been paid and how the business is trading now. A small paid default from years ago is viewed very differently from a recent unpaid one.
What is a non-monetary default?
A breach that isn't a missed payment: failing to supply annual accounts, letting insurance lapse, breaking a financial covenant, or selling secured equipment without permission. Some contracts also treat unpaid tax debts or legal action against you as defaults.
What is a cross-default?
A clause saying that defaulting on one debt counts as a default on this one too. It means trouble with an equipment loan, for example, can put a separate term loan or overdraft at risk.