Glossary - Default
Default refers to the failure to fulfill an obligation, especially the failure to meet a financial obligation such as a loan repayment. In the context of finance and investments, default can trigger significant consequences for borrowers, including legal actions, seizure of assets, or negative impacts on credit ratings.
Also known as
- Breach of contract
- Failure to pay
Use cases examples
- Loan Agreement: In the event of a default under this agreement, the lender has the right to demand immediate repayment of the outstanding balance.
- Bond Indenture: If the issuer fails to make a payment on the due date, it will be considered in default of its obligations under this indenture.
Considerations for investors
- Investors should conduct thorough due diligence to assess the risk of default before entering into any financial agreement.
- Having clear, enforceable remedies in the event of default is crucial for investors to protect their investment.
Considerations for founders
- Founders should be aware of the specific conditions that constitute a default under any financial agreement to avoid unintended breaches.
- It is critical for founders to communicate with lenders or investors promptly if they anticipate difficulty meeting financial obligations.
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