Imagine you lent $1000 to your friend to help them start a small business. You both agreed that your friend would pay you back the $1000 plus an additional $100 as interest within one year.However, six months later, your friend's business is not doing well and they are having trouble making enough money to pay you back. There is a risk that your friend may not be able to pay you back the full amount they owe you $1100 by the agreed-upon date.This situation represents default risk for you as the lender.