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How lenders treat past defaults
A default is recorded when a lender formally closes an account due to non-payment. It remains on the company (and potentially director's personal) credit file for six years. High-street and mainstream commercial banks will typically decline applicants with defaults in that window. Specialist lenders apply more nuanced assessments, weighing the default against current circumstances.
Factors that reduce the impact of a past default
- Time elapsed: A default from five years ago carries less weight than one from twelve months ago, particularly if recent trading is demonstrably stable.
- Satisfaction: A satisfied default — one where the outstanding balance was eventually repaid — is viewed more favourably than an unsatisfied one.
- Explanation: A well-documented explanation (illness, loss of a major contract, pandemic disruption) that does not reflect ongoing mismanagement helps lenders contextualise the entry.
- Subsequent conduct: Clean payment behaviour since the default is strong evidence of recovery. Lenders will look at post-default bank statements carefully.
What a strong recovery case looks like
The most compelling post-default applications pair a clear written explanation of what happened with concrete evidence of current financial health: consistent cash inflows, no current arrears, up-to-date statutory filings, and ideally a year or more of clean trading. Security — business assets or a director guarantee — adds further reassurance to a lender who is taking a view on reformed risk.
Products most accessible after a default
Secured products are generally more accessible than unsecured ones after a default. Asset finance — where the lender holds the asset — and invoice finance — where receivables provide security — are commonly available to companies with adverse history, provided current trading is sound. See also business loans with bad credit for related considerations. All terms from any lender are indicative and not offers.
Frequently asked questions
Does a satisfied default disappear from my file?
No. A satisfied default is marked as satisfied but remains on the credit file for six years from the date of default. Satisfaction improves how lenders interpret the entry, but it does not remove it.
What if the default was disputed or recorded in error?
You can raise a formal dispute with the credit reference agency. If the default was recorded incorrectly, you are entitled to have it corrected or removed. An uncorrected erroneous default is worth challenging before applying for finance.
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