Short answer
What matters first
Yes, some lenders will consider a business loan when the business or a director has a credit default, but options narrow and costs usually rise. Lenders look at whether the default is paid or unpaid, how large and how old it is, what caused it, and whether anything similar has happened since. A small paid default from a few years ago, followed by clean bank conduct and steady trading, is viewed very differently from a large, recent or unpaid default. Banks generally decline defaults, while some non-bank lenders specialise in credit-impaired applicants. In Australia, a consumer default generally stays on a credit file for five years from the date it was listed, even after it is paid, although the paid status is recorded.
Detailed explanation
A default can feel like a closed door, but lenders differ widely in how they treat one. What matters most is the story around it and what the business's recent trading shows.
This guide explains how defaults are assessed, what to prepare and when another approach may be better than a new loan.
What a default is and how long it stays
A default is a listing recording that an overdue debt was reported by a creditor. On personal credit files in Australia, a default generally remains for five years from the listing date. Paying it changes its status to paid, but does not remove it unless the listing was incorrect.
Business credit files can also carry defaults, court judgments and other adverse records. Lenders may check both the company and its directors.
How lenders read a default
Lenders that consider credit-impaired applicants look for evidence that the problem is behind the business. These factors usually carry the most weight.
- Paid or unpaid status
- Amount compared with the business's turnover
- Age of the listing and whether it was a one-off
- Who the creditor was, such as a telco, supplier or finance company
- Bank conduct and trading since the default
- Any later defaults, judgments or repayment arrangements
What to prepare
Get copies of the relevant credit reports so you know exactly what a lender will see. Prepare a short, factual explanation of what happened and what changed. If the default is unpaid, consider whether it can be settled before applying, and keep evidence of payment.
Strong recent bank statements matter more than usual. Our guide on funding with low credit explains which lender types may still consider the application.
When another approach may be better
If the default is part of a wider pattern, such as ongoing dishonours, unmanaged tax debt or several recent listings, another loan may add pressure. In that situation, accounting or restructuring advice may help more than new borrowing.
If the business already carries expensive short-term debt, a refinance may be worth comparing with an additional loan.
Illustrative comparison
Business A has a $900 telco default from four years ago, paid, and 18 months of steady deposits with no dishonours. Business B has a $15,000 supplier default listed six months ago, still unpaid, and frequent overdrawn days. Business A may still have several lender options; Business B is likely to struggle until the default is resolved and conduct improves.
These are illustrations, not approval thresholds. Each lender applies its own policy.
Caveats
Funding with an impaired credit history usually costs more, and offers may have shorter terms or more frequent repayments. Compare the total repayable before accepting.
Be wary of anyone promising guaranteed approval or offering to remove a correct default for a fee. Only incorrect listings can be corrected, and you can request that yourself from the credit reporting body.
Frequently asked questions
Does paying a default remove it from my credit file?
No. It is updated to paid, which lenders view more favourably, but it usually remains for the full listing period.
Can a company get a loan if a director has a default?
Sometimes. Lenders weigh the director's history with the company's trading, especially if a director's guarantee is required.
Will a bank lend to a business with a default?
Banks are generally less flexible. Non-bank lenders are more likely to consider credit-impaired applicants, usually at a higher cost.
Business Funding Support
Have a default and need funding?
Share the details, including what happened and how the business trades now. We can review whether a realistic pathway exists before you apply.