Events of default clause: sample for a business loan

Sample clause

Written for a three year business loan from a fictional private lender to Kerfwell Joinery Pty Ltd, a fictional joinery workshop.

Events of Default. Each of the following is an Event of Default: (a) the Borrower does not pay an amount when due and does not pay it within 7 days after the due date; (b) the Borrower breaches any other obligation and, if the breach can be remedied, does not remedy it within 14 days after the Lender gives notice; (c) a representation made by the Borrower in or for this agreement is false or misleading in a material respect when made; (d) an Insolvency Event occurs in relation to the Borrower or a Guarantor; (e) the Borrower ceases or threatens to cease carrying on its business. At any time while an Event of Default continues, the Lender may by notice declare all amounts owing immediately due and payable and may enforce any security, subject to any stay imposed by law.

Sample wording, not legal advice.

Variants

What to negotiate

• Grace and cure periods

  A borrower should ask for a short grace period for administrative payment failures and a cure period for breaches that can be fixed. Lenders accept these for non payment breaches more readily than for missed payments. Seven days for payments and fourteen days after notice for other breaches, as in the sample, is a common middle ground.

• Materiality and thresholds

  Triggers for false statements, other breaches and cross default should carry a materiality qualifier or a dollar threshold, so a minor error does not put the whole loan at risk. Subjective triggers such as a material adverse change in the lender's opinion should be limited to the reasonable opinion of the lender and tied to the borrower's ability to pay.

• Insolvency events and the stay

  Since 1 July 2018, the Corporations Act stays the enforcement of many rights triggered only by a company entering voluntary administration, a receivership over most of its property or a scheme of arrangement, known as the ipso facto stay. Default for non payment is not affected. A lender relying solely on an insolvency trigger may find it cannot act while the stay lasts.

The risk of leaving it out

A loan without an events of default clause leaves the lender to rely on general law, which usually means waiting for each instalment to fall due and suing for it separately. It also leaves the borrower uncertain about what conduct could put the loan at risk, so a lender's demand after a minor breach can turn into a costly dispute.

What the list usually covers

Most business loans list non payment, breach of other obligations, misrepresentation, insolvency of the borrower or a guarantor, cessation of business, cross default on other debt, and enforcement action by other creditors such as a judgment left unpaid. Facilities to larger companies add financial covenant breaches and a change of control. The list should match the size of the loan: a three year equipment loan does not need the triggers of a syndicated facility.

Insolvency events and the ipso facto stay

Under sections 415D, 434J and 451E of the Corporations Act 2001, rights under a contract cannot be enforced against a company merely because it has entered voluntary administration, had a managing controller appointed over all or substantially all of its property, or announced a scheme of arrangement to avoid winding up, while those processes run. Some contracts and rights are excluded by regulation. The stay does not stop a lender acting on a separate event of default, such as a missed payment. Law checked on 21 October 2026. This page explains how the law works and is not legal advice.

Notice of default

When an event of default occurs, the lender usually sends a notice stating the event, the amount owing and the time to pay before it accelerates the loan or enforces security. A clear notice protects the lender if the borrower later argues it was not warned. The notice of default example shows a private lender doing this after missed instalments, with the dates and amounts in a table.

Where the clause sits in a generated document

Loan agreements, promissory notes and facility letters carry the clause near the end, before enforcement and security. When asking the AI document generator for a loan agreement, list the events of default, the grace and cure periods and the lender's remedies in the prompt, so each becomes a numbered sub clause.

Documents that carry this clause

Loan agreement templateA Tasmanian foundry is borrowing $180,000 from a private investment company to buy a used induction furnace. The lender is not a bank, so everything a bank would take for granted has to be written down: what has to happen before the money moves, what is registered over what, and how long the borrower gets to fix a default.Promissory note templateA timber company owes $45,000 to a private lender and needs one page that says so. No conditions precedent, no covenants, no security. Only the maker signs, which is what keeps a note short and what lets the holder pass it on to somebody else.Notice of default template that gives a real chance to fix itA notice of default has to identify the loan, show exactly what is overdue, give the borrower a fixed date to put it right, and say what happens if they do not. This one page notice from a private lender after two missed instalments on an $18,000 business loan does that with an arrears table, a 30 day cure period and the acceleration clause quoted.

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