Quick answer
If a UK business loan goes into default, the lender typically charges default interest, issues a formal demand for the full balance, reports the default to commercial credit bureaus, and pursues recovery against the company. Where a personal guarantee is in place, the lender can pursue the guarantor personally. Early engagement with the lender almost always produces a better outcome than missed payments and silence.
The early stages: arrears and contact
Default does not happen at the first missed payment. Most lenders will class one missed payment as 'arrears' and try to make contact - phone, email, formal letter - to understand whether the missed payment is an oversight, a temporary cashflow issue or something deeper. Arrears is not yet a formal default and does not yet trigger the worst consequences.
Two or three missed payments without engagement usually moves the account towards formal default. The lender's credit team gets involved, default interest may be applied, and the case is moved out of standard servicing. From here, options narrow.
Formal default and demand
Once an account is in formal default, the lender will usually issue a written demand for the full outstanding balance - principal, accrued interest, default interest and any fees. The grace period to repay or agree a plan is typically short, often fourteen to thirty days.
Default is reported to commercial credit bureaus, and a default marker stays on the company's file for six years. This single event materially affects the company's ability to borrow elsewhere during that period. For directors with a PG, the marker may also reach personal credit files if enforcement proceeds.
Enforcement: company and guarantor
If the demand goes unmet, the lender enforces. For an unsecured loan, that usually means county court action against the company for a money judgment, followed by enforcement steps - charging orders, third-party debt orders, statutory demands, and in some cases a winding-up petition.
Where a personal guarantee exists, the lender can pursue the guarantor in parallel. The PG becomes a personal liability at this point. The lender can obtain a county court judgment against the guarantor personally, register a charging order against the guarantor's home or other assets, and ultimately force a sale in some cases.
Secured loans involve enforcement of the registered charge directly: appointment of a receiver, sale of the secured asset, and a deficiency claim if the sale does not cover the balance.
Why early engagement changes the picture
Lenders typically have a strong preference for restructured deals over enforcement, because enforcement is slow, expensive and often produces a smaller recovery than a workout. A borrower who contacts the lender at the first sign of a problem, with a clear honest picture of cashflow and a proposal, is in a different conversation to one who goes silent.
Common workouts include short-term payment holidays, capital deferral, term extensions, and partial settlements. None of these are guaranteed - the lender will weigh the borrower's credibility and the realistic prospect of recovery - but they only become available when the borrower asks. Once enforcement starts, the room for negotiation narrows fast.
Key points
- Arrears is not yet default; engagement before default usually changes the outcome.
- Formal default produces a six-year credit-bureau marker on the company.
- PGs become personal liability at enforcement.
- Secured loans enforce against the registered asset.
- Workouts (payment holidays, term extensions) are usually only available before enforcement.
Finance types that may be relevant
The product categories below are commonly considered for this situation. Suitability is subject to lender underwriting and your trading profile.
Unsecured Business Loan
Term loan or credit line repaid through fixed instalments.
Secured Business Loan
Larger bespoke cashflow or asset-backed debt.
Merchant Cash Advance
Cash advance repaid as a share of card/POS/platform sales.
Related guides
Frequently asked questions
- Will a default close my company?
- Not directly. Default can lead to a winding-up petition, which can close the company, but many defaults are resolved through workout, partial settlement or insolvency processes short of liquidation.
- How long does a default stay on file?
- Six years on commercial credit bureaus from the date of default, even if the balance is later settled. A satisfied default looks better than an unsatisfied one.
- Can a lender force me into bankruptcy personally?
- Where a PG is in place and the lender enforces successfully, they can pursue bankruptcy as one tool. It is not common but it is possible for larger uncovered balances.
- Should I use a debt advice service?
- For serious distress, yes. There are non-profit business-debt advice services in the UK. Lendrly itself does not provide regulated debt advice.
Compliance note
Eligibility guidance only - not financial advice, not a loan offer, not a guarantee of approval.