Glossary
Cross-default
A cross-default clause makes a default under one loan or agreement a default under another. It can link loans with the same lender, or loans with different lenders where one agreement refers to defaults on other debts.
An example
A borrower falls behind on a vehicle lease held by the same group that provided their property loan. Because the property loan contains a cross-default clause, the lender is entitled to treat the property loan as in default too.
Why it matters
Cross-default clauses mean a small problem in one place can affect much larger facilities. Before signing, borrowers should understand which other debts are linked, whether there are thresholds or grace periods, and what notice the lender must give.
Points to check
Read the definition of default in every loan agreement and look for references to other debts, guarantees or related entities. A minor issue on one facility could trigger rights under another. Ask whether there is a threshold amount or a grace period before a cross-default applies, and whether defaults by related companies or guarantors count. Knowing how your loans are linked helps you plan if one project or property runs into difficulty.