Cure Period
A cure period is the contractual window of time a borrower has to remedy a loan default or covenant violation before the lender can exercise enforcement remedies such as acceleration or foreclosure.
Definition
Cure period refers to the specified timeframe in a loan agreement during which a borrower may correct (or "cure") a default condition before the lender is entitled to pursue remedies. When a borrower breaches a covenant or misses a payment, the cure period defines how many days the borrower has to resolve the issue and restore the loan to good standing.
Cure periods are standard provisions in virtually all commercial loan agreements, though their length and scope vary by default type. Payment defaults typically carry cure periods of 5 to 15 days, while financial covenant defaults may allow 15 to 30 days or more for the borrower to bring ratios back into compliance or provide additional collateral. Some defaults, such as bankruptcy filings or fraud, are generally not curable and trigger immediate lender remedies.
The cure period begins when the borrower receives formal written notice of the default from the lender, or in some agreements, when the default condition first occurs regardless of notice. Understanding the distinction between notice-triggered and automatic cure periods is critical for borrowers managing compliance obligations across multiple credit facilities.
Why It Matters
For commercial borrowers, the cure period is the last line of defense between a technical default and the severe consequences of loan acceleration, increased interest rates, or asset seizure. Businesses that operate on thin margins or experience seasonal revenue fluctuations may periodically trip covenant thresholds. The cure period provides the breathing room to inject capital, restructure operations, or negotiate a covenant waiver with the lender before consequences escalate.
From the lender's perspective, cure periods balance enforcement rights against the practical reality that immediate default remedies can destroy value for both parties. A borrower who can resolve a DSCR shortfall within 30 days represents a different risk profile than one in structural decline. Well-drafted cure provisions protect the lender's position while preserving the borrower's ability to perform.
Cure periods also interact directly with cross-default provisions. If a borrower has multiple loans, a default on one facility that is not cured within the specified period can trigger defaults across all facilities with cross-default language, creating a cascading enforcement scenario that is far more damaging than the original breach.
Common Mistakes
Ignoring the clock: Borrowers sometimes treat cure period notices as routine correspondence rather than time-sensitive legal deadlines. Every day counts. Missing the cure window by even one day gives the lender full authority to exercise remedies, and courts generally enforce these deadlines strictly.
Assuming all defaults are curable: Not every default triggers a cure period. Loan agreements typically carve out certain "incurable" events, including bankruptcy filings, material misrepresentation, and unauthorized transfers of collateral. Borrowers should identify which defaults in their agreements carry cure rights and which do not.
Curing the symptom instead of the cause: A borrower who cures a covenant violation by making a one-time capital injection without addressing the underlying cash flow problem will likely trip the same covenant again in the next reporting period. Lenders track repeated cures, and most agreements limit the number of times a borrower can cure the same type of default within a given period.
Overlooking cross-default acceleration: Curing a default on one loan does not automatically cure a cross-default that has already been triggered on a separate facility. Borrowers with multiple credit relationships must monitor cure timelines across all agreements simultaneously, since a missed cure on a smaller facility can cascade into defaults on larger, more consequential loans.
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How long is a typical cure period in a commercial loan?
Cure period length depends on the type of default and the negotiated terms of the loan agreement. Payment defaults typically carry cure periods of 5 to 15 days, while financial covenant defaults often allow 15 to 30 days. Reporting and administrative defaults may have longer windows of 30 to 60 days, since the lender recognizes these are operational rather than financial failures. SBA-backed loans and Commercial Real Estate facilities may have different cure structures defined by program guidelines or market convention. Borrowers should negotiate cure period length during the term sheet stage, as these provisions are far harder to modify after closing.
Can a lender refuse to honor a cure period?
If the cure period is written into the loan agreement, the lender is contractually bound to honor it for default types covered by the provision. However, lenders are not required to extend cure rights beyond what the agreement specifies. If the borrower fails to cure within the stated timeframe, or if the default falls into an excluded category (such as bankruptcy or fraud), the lender can proceed with enforcement remedies immediately. In some cases, lenders may voluntarily extend a cure period through a forbearance agreement, but this is a discretionary decision that typically comes with additional fees, tighter covenants, or other concessions from the borrower.
What happens if a borrower successfully cures a default?
When a borrower cures a default within the specified cure period, the loan is generally restored to good standing as if the default had not occurred. The lender cannot pursue remedies for that specific cured event. However, the default and cure are typically documented by the lender and may affect the borrower's standing in future negotiations, covenant amendments, or refinancing discussions. Some agreements include provisions that limit the total number of cures a borrower can exercise within a rolling 12-month period, often capping it at two or three cures for the same covenant. Repeated cures signal ongoing stress, and lenders may respond by requiring a formal amendment with tighter terms rather than allowing continued reliance on cure rights.
How do cure periods relate to loan acceleration?
Loan acceleration, where the lender declares the full outstanding balance immediately due and payable, is one of the primary remedies a lender pursues after an uncured default. The cure period is the contractual buffer that prevents the lender from accelerating immediately upon a default event. If the borrower successfully cures the default within the allowed window, the lender loses the right to accelerate based on that specific event. If the cure period expires without a successful cure, the lender may then issue an acceleration notice. For borrowers with balloon payment structures or facilities nearing maturity, acceleration can create an immediate liquidity crisis, making the cure period especially important to monitor and act on promptly.
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