The lender will charge default interest (typically 4-6% above the contract rate), report the default to Equifax, and may demand full repayment of the drawn balance. For secured facilities, they can enforce against the security. But there are steps you can take before it gets to that point.
Default Interest and Penalty Fees
The first thing that happens when you miss a payment or breach your overdraft terms is a rate increase. Most business overdraft contracts include a default interest clause that adds 4-6% on top of your existing rate.
Default cost impact
If your contract rate is 22% p.a. and the default margin is 6%, you are now paying 28% p.a. on the outstanding balance. On a $50,000 drawn balance, that is an extra $8.22 per day, or $57.53 per week in additional interest. This adds up fast.
Key point: Default interest starts accruing from the date you miss the payment, not from the date the lender notifies you. By the time you receive a default notice, you may already owe several hundred dollars in extra interest.
Credit Reporting Consequences
If you are more than 60 days overdue on a payment of $150 or more, the lender can report a default to Equifax. This is a formal default listing, and it is serious.
- Score impact: A default can drop your Equifax score by 100-200 points immediately.
- Duration: The default stays on your file for 5 years, regardless of whether you pay it.
- Future borrowing: Most lenders (bank and non-bank) will see the default and either decline you or charge higher rates.
- Paid vs unpaid: Paying the default changes the listing to "paid default" which is better, but it still appears on your file.
Before listing a default, the lender must send you a Section 6 notice giving you 30 days to remedy the breach. If you pay within that 30-day window, the default is not listed. This is why acting early matters.
Demand for Full Repayment
If the default is not remedied, the lender will issue a formal demand for repayment of the entire drawn balance, plus all accrued interest and fees. At this point, your revolving facility is cancelled. You cannot redraw.
Worked Example: Default Escalation Timeline
Day 0: Missed interest payment of $450. Default interest starts accruing (22% + 6% = 28%).
Day 14: Lender contacts you by phone and email. Late fee of $55 charged.
Day 30: Lender issues Section 6 notice (formal 30-day cure period begins).
Day 60: Cure period expires. Lender lists default on Equifax. Facility frozen.
Day 90: Formal demand letter issued for full repayment of $52,340 (drawn balance + default interest + fees).
Day 120+: Legal proceedings commence. Enforcement against guarantor and/or security.
Total extra cost from default: $1,920 in default interest + $55 late fee + legal costs. Plus a 5-year credit file mark.
Personal Guarantees and Director Liability
Almost every business overdraft in Australia requires a personal guarantee from the directors. This means if your company cannot repay the overdraft, the lender can pursue you personally.
What the lender can pursue under a personal guarantee:
- Personal savings and bank accounts
- Personal property (if provided as security)
- Other personal assets, via court judgement
- Garnishment of personal income
For sole traders, there is no separation between business and personal assets. The lender can pursue any asset you own. For companies, the personal guarantee creates the same exposure for the guarantor directors.
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Contact us now →What to Do If You Are Struggling
If you are having trouble making repayments, the worst thing you can do is go quiet. Lenders and brokers can help, but only if you reach out before things escalate.
- Contact your broker immediately. Before you miss a payment. We can negotiate with the lender on your behalf.
- Request a hardship variation. Under the National Credit Code, lenders must consider genuine hardship applications. This can include reduced repayments, interest-only periods, or temporary pauses.
- Explore refinancing. If your situation has changed but you still have cash flow, moving to a different facility structure may help. A term loan with fixed repayments is sometimes easier to manage than a revolving overdraft.
- Consider consolidation. If you have multiple debts, consolidating into one facility with one repayment can reduce pressure and cost.
- Get professional advice. A financial counsellor (free through the National Debt Helpline on 1800 007 007) can help you understand your options.
Important: Do not take out new debt to cover existing debt without professional advice. This can make your situation worse. Talk to your broker or a financial counsellor first.
Frequently Asked Questions
A default listing stays on your Equifax file for 5 years from the date it is reported, regardless of whether you pay it. Paying the default changes the status to "paid" but does not remove it from your file early.
Only if you provided property as security for the facility. Unsecured overdrafts cannot directly result in property seizure. However, if you signed a personal guarantee, the lender can pursue legal action against you personally, which could eventually lead to enforcement against assets.
Contact your broker or lender immediately. Do not wait until you miss a payment. Most lenders will work with you on a hardship arrangement, interest-only period, or restructure. Early communication prevents default listing on your credit file.
Yes. Default interest accrues daily on the outstanding balance until the default is cured (paid in full or restructured). At 26-30% p.a., a $50,000 balance accrues about $36-$41 per day in default interest.
Yes, but it is harder and more expensive. Once the default is paid, some non-bank lenders will consider you after 12 months. Your rate will be higher (typically 22-28% p.a.) and your limit will be lower until the default ages off your file after 5 years.
General information only. Not financial advice. Credit subject to lender assessment. All rates, fees and terms quoted are indicative only and subject to change based on your individual circumstances, credit profile and lender policy. OverdraftMe is a credit representative of Lend & Loan Pty Ltd (ACL 511092).