What Constitutes a Default?

A default is a breach of a legally binding agreement(s) that two parties had previously set out. A default typically occurs when the borrower fails to meet the promises and requirements it agreed to. These agreements vary on the lender and the circumstances of the loan but are in place to protect the lender. An event of default could be missed payments, untimely payments, failure to disclose critical information, cross-default (a default on a separate agreement that directly results in a default on other agreements), or a variety of other things. Events of default can be dealt with in many ways as well. For example, depending on the issue and the severity of the breach, the lender might seize control of the business or its assets, set up a meeting to discuss a plan forward, waive the incident, or take a course of action in between.

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