2 min read
Definition
An event of default is a defined breach of the loan agreement that entitles the lender to accelerate the debt — commonly a missed payment, a broken financial covenant, insolvency, or a cross-default.
In plain terms
It is a much broader concept than "missing a payment". You can be technically in default while completely up to date on cash simply by breaching a ratio covenant.
Why it matters for your company
Know every event of default in your agreement and monitor the covenants monthly through your management accounts. Early forbearance talks beat a formal default.
Related reading
Default
Default is when a borrower fails to meet the terms of a loan — most often by missing repayments, but also by…
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Covenant
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A loan agreement is the contract that governs a loan — amount, rate, term, security, covenants and default…
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Acceleration is a lender demanding the whole balance at once after a default — the clause that turns a…
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