What is the effect of cross-default provisions in a secured lending agreement?

• A. They require consent from all debtors for any default.
• B. They accelerate or enable enforcement on related obligations when one obligation defaults.
• C. They limit enforcement to the defaulted obligation only.
• D. They automatically release collateral if one default occurs.

Answer: (B)

Cross-default provisions tie together multiple borrowings so that a default on one obligation can affect the others. When one obligation falls into default, these clauses let the lender accelerate the entire amount due and extend enforcement to related debts, often including other loans the borrower has with the same lender or affiliates. This protects the lender from a situation where the borrower pays one defaulting loan while using the proceeds to cover others, effectively giving access to remedies across all connected indebtedness. It also clarifies that remedies can extend beyond the single loan, potentially including accelerated repayment and seizure of collateral for multiple obligations, subject to the agreement’s definitions of default and the scope of the clause. The other options don’t fit because cross-default isn’t about requiring consent from all debtors to trigger action, it doesn’t limit enforcement to the specific defaulted loan, and it doesn’t automatically release collateral when a default occurs.