Event Of Default

You borrow $100,000 to upgrade the smoothie machines you have in your smoothie shop (the new Squishmatic 5000 can really churn). The loan agreement includes an event of default clause, which outlines certain situations where the lender can demand that the full amount get paid back immediately. One of the events listed is a buyout from a competitor.

Within a couple weeks, you decide the smoothie business isn't for you, and you make a deal to sell out to Juice Heaven down the street. That triggers the event of default. You now owe the lender the full repayment of $100,000, or they have the right to claim the collateral you put up (in this case, the Squishmatic 5000s that you bought with the money).

You don't really worry about it too much, since the whole situation is really Juice Heaven's problem now. They work it out with the lender, paying them back for the Squishmatic loan, and you're free to live the rest of your life without the threat of default events hanging over your head.