The risk that a person or corporate entity will fail to fully pay financial obligations, including principal and interest owed. Also known as default risk.
Lending money to a friend. There is always the possibility, that despite the best intentions, the funds will not be paid back.
The friend forgets about the loan, you are offended, your relationship suffers, and you grow apart.
The friend takes the money and invests it in a small business. The business takes off, and the friend shares significant financial rewards with you as a warm sign of gratitude.
The risk that an individual or corporation may file for bankruptcy, which often leads to losses for creditors.