What is cross-default in a loan agreement?

2 min read

One → allHow it cascades

Contract termWhere it lives

Read firstHow to manage

What it means

A cross-default clause says that if you default on any other borrowing — or sometimes just breach a covenant elsewhere — this lender can treat their loan as in default too. It protects lenders by making sure they are not last in the queue if you get into difficulty with someone else.

What this means for your company

The risk is contagion: one late facility can trip several agreements at once, all becoming repayable. Before adding a new facility, check whether it contains cross-default and whether it references your existing debts. Keeping facilities simple, and not stacking multiple lenders, reduces the danger. If you already have several, map how they interact with a funding review.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

Is cross-default common in small-business lending?

It is more common in larger, bank-syndicated deals, but some SME agreements include it. Always ask the lender directly and read the default clauses before signing.

How do I limit cross-default risk?

Avoid stacking many facilities, keep good records so you never miss a covenant or payment, and prefer simple standalone agreements. Fewer interlinked loans means fewer ways for one problem to spread.