Default . . . 

is the failure of one party to fulfill its obligations to another party under an agreement. Company defaults on financing agreements usually give substantial rights to the investor. Depending on the nature of the default and terms of the contract, those rights could empower an investor to withhold funding, to take over the company, or to accelerate the company's obligation to pay off debt.

Whenever possible, management should try to limit an investor's default rights to circumstances that involve material defaults so that inconsequential, technical defaults do not cause the company to be penalized. Rights to remedy or ‘cure’ defaults can often be obtained and written into an agreement. These cure rights permit a company to correct defaults and avoid the severe penalties they can involve. See: Benchmarks, Cure Periods, Projections, Take Away Provisions.