Will an overdue Bounce Back Loan impact my company credit score?

When news of the pandemic surfaced, it sent shockwaves through global economies as lockdown restrictions stifled core sources of income and consumer demand shifted overnight. Businesses with both minute and majority market share experienced unprecedented disruption to company operations and company cash flow. It became rapidly evident that failing to provide emergency state support would instigate the highest wave of company closures since the recession.

The Bounce Back Loan Scheme (BBLS) was soon unveiled and offered 100% government-backed loans up to £50,000 to small businesses. Bounce Back Loans were presented as easily accessible, with funds being made available in a matter of days following a straightforward application process. Over 1.5 million businesses took out a Bounce Back Loan before the scheme rolled down its shutters on 31 March 2021. 

As Bounce Back Loan repayments start, we question how an overdue Bounce Back Loan could impact your business credit score. 

How will an outstanding Bounce Back Loan impact my business credit rating?

A Bounce Back Loan is unsecured and 100% government-backed which means that if you are unable to make repayments as your business is insolvent, the government will settle the remainder of the loan with the lender.

For lenders to be recompensed by the state, they need to take steps to recover funds and may, therefore, launch legal action against your business. If you use the loan for purposes other than those prescribed, you could also be subject to an investigation into director conduct. 

Bounce Back Loans were offered under affordable terms, with repayments starting after the first 12 months and interest at a fixed rate of 2.5% paid for by the government throughout this period. Witnessing the long-lasting repercussions of the pandemic, the Pay As You Grow Scheme was introduced to offer relief to businesses from Bounce Back Loan repayments.

The Pay As You Grow Scheme extended three options to struggling businesses:

-      Extend loan term from six to ten years

-      Reduce payments for six months by making interest-only payments

-      Request a six-month payment holiday

As some businesses resume trading as normal, a fair remainder blighted by Covid-19 restrictions are struggling to revive themselves. We run through how an overdue Bounce Back Loan could have long term implications on the financial health of your business and your credit score.

Credit score: If your business has failed to bounce back and is now unable to afford Bounce Back Loan repayments, this will not currently impact your company credit score. As the economy recovers from harsh trading conditions cast down by Covid-19, the consequences of an outstanding Bounce Back Loan on your credit rating could likely change.

It’s important to note that overdue business loans, other than your Bounce Back Loan, could be detrimental to your credit score. Your credit history will be influenced by several factors concerning your overdue business loans that include:

- How late are business repayments?

If you make a repayment within 30 days after the payment is due, lenders are unlikely to report you to a credit agency. If your business loan repayment is overdue by over 30 days after the deadline, lenders may report you and this could remain on your credit report for seven years.

- How many business loan repayments are overdue?

If you are overdue on multiple business loan repayments, this will have a drastic impact on your credit score. A single missed payment may be accidental, whereas, a series of late repayments could demonstrate that your business is out of cash, and therefore, contingently insolvent. 

If your credit score is hard hit due to outstanding business loans, this will adversely impact your ability to access business credit at a competitive rate. Lenders may disable your ability to access further funds if you are already off track with existing loan repayments. Responsible borrowing behaviour is integral when accessing finance and will be illustrated by your borrowing history.

Creditor action: If you are behind on multiple business loan repayments, the lender may take formal action against your business to pursue repayments, from issuing payment reminders, a County Court Judgment (CCJ) or a Winding Up Petition. If the lender takes the legal route, this action will be recorded on your credit history.

If a winding up petition is granted, your business will be forced into compulsory liquidation and removed from the Companies House register, unless you seek company liquidation advice from a licensed insolvency practitioner. 

If you can’t pay your Bounce Back Loan, this will be pursued in the same way as any other outstanding loans; however, it will not currently impact your business score. Although your credit score may be temporarily unaffected by an outstanding Bounce Back Loan, this ruling could subsequently change.

From a commercial point of view, a poor credit score can hinder the growth of your business as you will no longer be privy to exclusive and competitive borrowing rates and your existing overdraft facility may be limited. This may also restrict your ability to interact with selected suppliers and establish commercial relationships.