In one sentence
A provision making a default under one loan an automatic default under another, linking otherwise separate obligations.
The longer version
Cross-default clauses let a lender treat trouble on one loan as trouble on all related loans, protecting against a borrower selectively defaulting. They are common where one sponsor has multiple facilities with the same lender.
For diligence, cross-default and cross-collateralization terms change the risk picture, because they entangle loans that look independent on their face.
Common questions
- What is a cross-default provision?
- A clause making a default under one loan a default under another, linking separate obligations so a lender can act on all of them together.
- Why do lenders use cross-default?
- To protect a relationship with several loans to related borrowers. Trouble on one asset can signal trouble with the sponsor across all of them.
- Is cross-default the same as cross-collateralization?
- No. Cross-default links the default triggers. Cross-collateralization links the collateral, so each property secures the combined debt. Loans often have both.
Keep reading
- The due diligence checklist, built to be runChecklists as systems, not documents.
- The commercial loan closing checklistWhat goes on the list and who owns each line.
- The post-closing audit trailWhat examiners ask for and how to have it ready.
- Commercial loan softwareWhere this sits in the lending stack.