Default interest

Default interest is a higher rate that applies once a borrower is in default under a facility, typically triggered by a missed payment, a breach of a covenant, or failure to repay by the facility's maturity date, and it applies on top of, or in place of, the standard rate for as long as the default continues. It exists to compensate the lender for the additional risk and cost of a facility that is no longer performing as agreed, and to encourage prompt resolution rather than allowing a default to drift. Because default interest often applies automatically from the maturity date on a facility that is not repaid or refinanced on time, borrowers approaching the end of a short-term or capitalised-interest facility should engage with their lender well before maturity if the exit is at risk of slipping. The specific trigger events and the applicable default rate are set out in the loan offer, and vary meaningfully between lenders and facility types.

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Short-term business loans · Exit fee · Exit strategy