A loan provision that declares a borrower in default under one agreement if they default on any other debt obligation, allowing multiple lenders to accelerate simultaneously.
A cross-default clause is a contractual provision—standard in commercial credit agreements, SBA loan documents, and bond indentures—that triggers a default under the current agreement if the borrower defaults on any other material debt. Its purpose is risk-symmetry: lenders want to accelerate and protect collateral simultaneously rather than waiting while a domino sequence plays out. The clause typically specifies a threshold (e.g., defaults on debt exceeding $50,000, or any SBA-guaranteed obligation) and sometimes a grace period (e.g., the cross-default does not trigger until the other lender has declared an event of default or the cure period has lapsed). Some agreements include a cross-acceleration variant—which triggers only if the other creditor actually accelerates, not merely if a technical breach occurs. For small businesses stacking multiple credit facilities—an SBA 7(a) term loan plus an equipment line plus a commercial real estate mortgage—a cross-default clause means that missing a single payment can cascade into every facility simultaneously, stripping the borrower of time to cure individually. Review each lender's cross-default threshold before closing additional debt. The Federal Reserve's commercial lending examination guidelines recognize cross-default clauses as a standard structural protection (https://www.federalreserve.gov/supervisionreg/topics/commercial_lending.htm). The FDIC's commercial real estate guidance similarly notes that examiners assess whether cross-default provisions are appropriately scoped relative to borrower complexity (https://www.fdic.gov/bank/individual/failed/pws/cre-guidance.html). When negotiating, borrowers can request a higher threshold, a longer grace period, carve-outs for trade payables or subordinated debt, or a limitation to monetary defaults (excluding technical/covenant defaults).
Cross-default fires when you breach the other debt, even before the other lender reacts. Cross-acceleration is narrower—it fires only after the other lender actually exercises its right to demand immediate repayment.
Rarely eliminated entirely, but you can often negotiate a higher threshold (applies only to debt over $100K), a grace period, or a carve-out for trade payables and subordinated debt.
Yes. Standard SBA Note (Form 147) cross-defaults to other SBA-guaranteed obligations and, depending on lender addenda, to material non-SBA debt as well.