Quick answer
A default doesn't automatically rule out a business loan. Banks often decline on any default, but specialist lenders look at whether it's paid, how old it is, the amount, what caused it and whether it belongs to the business or a director. Property security, steady trading and a short honest explanation often outweigh it. Check every listing is accurate first, because incorrect defaults can be corrected for free.
Key points
- A consumer default can be listed once a payment of $150 or more is at least 60 days overdue and notices have been sent.
- Paid defaults stay visible but are updated to show they're paid.
- Errors can be corrected free of charge, and providers must act within 30 days if satisfied.
- Specialist lenders care about the story, the security and current trading.
- Default threshold
- $150+ overdue 60+ days
- Correction cost
- Free
- To enquire
- No credit check
A default is the credit file’s way of saying a payment was missed and not caught up. For a bank’s scorecard, it’s often enough to stop an application on the spot, regardless of the amount or the reason. That’s why so many owners with perfectly sound businesses get declined over a phone bill from years ago.
Specialist lenders read defaults, rather than just counting them. What they find usually matters more than the fact that a listing exists.
What exactly is a default?
For consumer credit, a credit provider can list a default when an amount of $150 or more is at least 60 days overdue, and after it has sent written notices. The OAIC explains that the provider must send two notices, the second at least 30 days after the first, and wait at least 14 days after the second before listing. It also can’t list a default while it’s considering a hardship request you’ve made.
Once listed, a default stays on the report even after you pay it, but its status is updated to show it’s been paid. The National Debt Helpline notes that defaults are removed after five years, and serious credit infringements after seven.
Businesses can also have commercial credit files with their own listings. Lenders usually check both the business and every director or guarantor.
Which defaults worry lenders most, and which least?
| Weighs less | Weighs more |
|---|---|
| Paid, with a clear explanation | Unpaid, or paid only recently to tidy the file |
| Older listings | Several recent listings |
| Small telco, utility or personal accounts | Defaults on business loans, equipment finance or trade credit |
| A single event (a dispute, a move, an illness) | A pattern across several creditors |
| Covered by property security | No security and thin cash flow |
The pattern matters most. One default with a believable story is a footnote. Four defaults across two years suggests a business that can’t pay its bills, and that’s harder to lend around.
What should I fix before I apply?
- Get your credit reports. Check each one for listings you don’t recognise, wrong amounts, or accounts that belong to someone else.
- Correct errors. The OAIC’s correction process is free. Ask the credit provider or the credit reporting body. If they’re satisfied the information is wrong, they must take reasonable steps to correct it within 30 days.
- Pay what you can. A paid default reads much better. If you can’t pay before applying, some lenders will pay it out from the loan at settlement.
- Write the story down. Two or three sentences per default: what happened, when, and what’s different now. Our guide on explaining a default to a lender shows how.
- Stop the enquiry spiral. Don’t apply in several places at once while you sort this out.
When you’re ready, tell us about the defaults in a 60-second enquiry. There’s no credit check when you first enquire, and the detail you give helps us choose the right lender.
How do specialist lenders fund around defaults?
The answer depends mainly on security.
With property: Property-secured business loans from $20,000 to $5,000,000 put the emphasis on the property’s value, what’s owing on it and your plan to repay. Defaults still get looked at, but they rarely decide the outcome alone. First mortgages, second mortgages and caveat loans are all possible.
Without property: Unsecured, cash-flow and line-of-credit facilities, commonly $5,000 to $500,000, are set according to how much money moves through your business account. Some of these lenders specifically work with bruised credit. They’ll want to see consistent deposits, sensible account conduct and no fresh defaults. See unsecured loans with bruised credit for more.
If you have defaults alongside other issues, such as a court judgment or tax arrears, the lender will look at the whole picture. That’s normal, and it’s why honest detail up front saves time.
Illustrative example: the default that came from a partner
Illustrative only, not a real client. Two partners run a small print business in Adelaide. One partner leaves, and a finance contract for a piece of equipment goes unpaid for several months during the handover. A default is listed against the business and against the remaining director.
The bank declines a later request for a working-capital facility. A specialist lender looks at the file: the default is paid, the cause is clear and documented, the equipment is still in use, and eighteen months of bank statements show steady turnover. The lender offers an unsecured facility sized on turnover, with a short explanation letter on file.
Does a director’s default affect a clean company?
Usually, yes. Lenders assess the directors and any guarantors alongside the business, because the directors run it and usually guarantee the loan. A personal default from a car loan or credit card can therefore turn up in a company application. The same approach applies: check it’s accurate, pay it if you can, and explain it briefly.
Let’s look at the whole file, not just the flag
We see defaults every day and we don’t judge them. What we need is the full picture, so your file reaches a lender who reads explanations instead of rejecting them. The form takes around a minute and there’s no credit check when you first enquire. It stays with one team, and a real person reads it and calls you.
Please list every default you know about, even small ones. Accurate answers mean we match you correctly the first time. See if you qualify →
Frequently asked questions
Should I pay a default before applying for a business loan?
If you can, usually yes. A paid default reads far better than an unpaid one. If it can't be paid beforehand, some lenders will pay it out at settlement as part of the loan.
How long does a default stay on my credit report?
The National Debt Helpline says defaults are removed after five years. Serious credit infringements stay for seven. Paying a default updates its status but doesn't remove it early.
Can a default be removed if it's wrong?
Yes. Ask the credit provider or the credit reporting body to correct it. There's no charge, and if they're satisfied it's incorrect they must take reasonable steps to fix it within 30 days.
Does a default on my personal file affect my company's loan?
Usually, yes. Lenders check directors and guarantors as well as the business, so a personal default is part of the picture even when the company's own record is clean.
Is a telco or utility default treated differently?
Many specialist lenders give small telco and utility defaults less weight than defaults on business loans or finance, particularly when they're paid and explained.