What is the difference between arrears and default on a business loan?
Arrears means you’re behind on repayments. Default means the lender has formally declared the loan breached, which is a much bigger step. Most business loans fall into arrears the moment a payment is missed. Plenty get caught up quietly before anything else happens. Default usually follows a formal notice and can make the rest of the balance payable at once. It can also sit on your credit file well after the debt is sorted, which changes what business finance you can get later.
What usually happens at each stage
Arrears is a numbers problem. One payment behind, then two. Lenders often chase by phone or email first and many will discuss a catch up plan if you ring them early.
- In arrears. The loan is live but behind. Late fees or default interest may apply.
- Formal notice. The lender writes to you setting out what is owed. The notice will state the timeframe you have to respond.
- Default. The breach is recorded. Security can be called on and the facility is usually closed to further drawdowns.
Where to get help if you’re behind
Arrears on their own don’t always block a refinance. Some non bank and private lenders will look past a short run of late payments if the business is trading and there’s security behind it. A recorded default narrows the field a lot and the pricing usually reflects that. A broker can test whether a business loan elsewhere actually improves things or just moves the problem. What no broker can do is reverse a default.
Talk to your accountant, or a registered insolvency adviser if the pressure has built. The free Small Business Debt Helpline is on 1800 413 828.
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Last updated 15th July 2026. Reviewed by Authorised Credit Representative 554584 of Australian Credit Licence 414426.