What happens if a loan defaults?

If a loan enters a default state a recovery process for it will be initiated.

Each case is different, but usually the process follows with an appointment of a liquidator for the particular lending entity that would try to recover all assets the company possesses. Money recovered through the liquidation process would be distributed among creditors first.

The process is rather similar for secured real estate and agriculture loans. In case of a default, the marketplace usually steps in and takes over the pledged asset (real estate, heavy machinery, etc.) that is then sold in an auction and received funds distributed among investors.

Historically, the recoveries for secured loans are much more successful than for lending companies. Although defaults of lending companies take place much more rarely.

Importantly, even though company has defaulted, it does not mean that you have automatically lost all your invested amount. In most cases, we see rather successful recoveries sometimes even returning the whole invested capital plus the interest earned.