Technical Default

Category: legal

A violation of a loan agreement covenant that occurs without a missed payment.

If a borrower fails to maintain the required debt-service ratio or fails to send their audited balance sheet to the bank on time, they hit a technical default. The bank has the legal right to call the loan due immediately, though they usually negotiate a waiver or fee instead.

Common Examples

• Our drops in retail margins triggered a technical default because our quick ratio dipped below the bank's explicit covenant floors.
• Resolving a technical default typically requires submitting a formal cure plan alongside paying an administrative waiver processing fee.