Credit & Risk

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

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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. As businesses with both minute and majority market share experienced unprecedented disruption to company operations and company cash flow, it rapidly became evident that without access to emergency state support, the pandemic would instigate mass company closures. 

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 repayments now begin to fall due, we question how an overdue Bounce Back Loan could impact your business credit score. 

Chapter 1

How will an outstanding Bounce Back Loan impact my business?

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 step in to settle the remainder of the loan as a last resort. Before reaching this stage, the lender will take steps to recover funds and may pursue legal action against your business. If you used the loan for purposes other than those prescribed, you could also be subject to an investigation into director conduct. 

Bounce Back Loans were granted under the basis that repayments would commence after the first 12-months and interest incurred at a fixed rate of 2.5% throughout this period would be paid for by the government. Witnessing the long-lasting repercussions of the pandemic, the option to extend repayments for a further six months was also made available. We run through how an overdue Bounce Back Loan could have long term implications on the financial standing of your business. 

Chapter 1

Company Credit Score

If your business has failed to bounce back and is now unable to afford Bounce Back Loan repayments, unpaid debt will impact your company credit score, just as other overdue business loans would. Your credit history will check several factors concerning your overdue Bounce Back Loan, which includes:

  1. How late is your Bounce Back Loan repayment?

    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 Bounce Back Loan repayment is overdue by over 30 days after the deadline, lenders are likely to report you which could remain on your credit report for seven years.

  2. How many Bounce Back Loan repayments are overdue?

    If you are overdue on multiple Bounce Back Loan repayments, this will have a drastic impact on your credit score. A single payment may appear to be an unintentionally missed payment, whereas a series of late repayments could imply that your business is out of cash, and therefore, contingently insolvent. If your credit score is hard hit due to your outstanding Bounce Back Loan, this will adversely impact your ability to access business credit and to do so 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 which will be visible from your borrowing history.

Chapter 1

Creditor action

If you are behind on multiple Bounce Back Loan repayments, the lender may take formal action against your business to pursue repayment, 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 liquidation advice for your limited company from a licensed insolvency practitioner. 

An overdue Bounce Back Loan will be pursued in the same way as any other outstanding loan, and therefore, it just as damaging to your business score. 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. 

Check and improve your business credit report

With Creditsafe, you get complete access to your own business credit profile, allowing you to better understand what’s affecting your company credit score and preventing you from being able to obtain the credit you need.