What Happens If You Miss One Business Loan Payment?
Missing one business loan payment is manageable if addressed promptly — but additional missed payments can lead to serious consequences.
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Running your business doesn’t always go as planned. A seasonal slow in cash flow, unexpected expenses or an operational oversight — and before you know it, you’ve missed a payment on your small-business loan.
Although one missed payment won’t likely lead to lasting damage — especially if you address it quickly with your lender — missing multiple payments can have more serious consequences, such as loan default and damage to your credit.
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When it comes down to it, the specific repercussions for missing a loan payment will depend on your lender and your established business loan agreement. In general, however, you might see the following ramifications:
You’re charged a late fee
This is one of the first things that may happen if you miss a business loan payment. Your lender will have laid out its late fee policies in your loan agreement. Wells Fargo, for example, charges a late fee of $39 for missed payments on its small-business lines of credit. If you miss a payment twice or more during a 12-month billing cycle, the fee increases to $50.
Although some lenders may provide a grace period — a set time in which you can avoid the late fee if you make a payment — this is not always the case.
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Keep in mind that some online lenders require you to set up automatic payments from your business bank account. In this case, if you miss a payment due to insufficient funds in your account, the lender may also charge a nonsufficient funds (NSF) fee. Fundbox, for instance, charges a $6 NSF fee on top of a late fee if you miss a payment due to insufficient funds.
You’ll pay more in interest
With many business loans, interest accrues daily based on your outstanding balance. If you miss a payment, therefore, additional interest (and possibly late fees) will continue to add up until the payment is made. This means, the longer you go without paying, the more interest you’ll owe over the life of the loan.
You can’t draw additional funds
If you miss a payment on a business line of credit, some lenders may freeze your account and suspend your ability to draw additional funds until you repay what you owe.
When you miss a payment on Bluevine’s line of credit, for example, the lender will put your account on hold until you make a “catch-up payment.” A catch-up payment consists of two weeks of repayments, a late fee of 5% of the missed repayment (with a minimum of $35) and any interest or other fees you’ve accrued. Once this payment is made, Bluevine will review your account to determine if you can continue to draw funds.
You damage your credit
Business credit
Missing a business loan payment has the potential to impact your business credit score immediately, although this isn’t always the case. Some lenders, like Fundbox, for example, only report missed payments to the commercial credit bureaus on a monthly basis — which means paying a few days late isn’t likely to impact your credit.
The longer you go without paying, and the more payments you miss, however, the more likely you are to damage your business credit score.
Personal credit
Not all lenders report payment history on a business loan to the consumer credit bureaus. If your lender does, it’ll typically wait until you’re at least 30 days past your due date before reporting it. If you can make up your payments during that time, your personal credit likely won’t be affected. If your delinquency continues beyond 30 days, however, your personal credit score could be negatively impacted.
Your loan becomes delinquent
Generally, your loan will be considered delinquent after you miss one payment. If you can make up the payment, this will bring your loan out of delinquency. If you continue to miss payments, however, your loan will likely fall into default.
Once you have defaulted on your loan, you’ll begin to face more serious consequences. Your lender may seize your collateral, go after your personal assets or even take legal action against you.
What to do if you miss a business loan payment
When you miss a business loan payment, you should reach out to your lender immediately and explain why you missed the due date. If you can make up for the missed payment quickly, you might be able to avoid late fees and additional interest charges. Making your payment within 30 days can also help mitigate any impact to your credit scores.
If you don’t think you’ll be able to make the payment right away, be upfront and honest with your business lender. The more proactive and open you are about your difficulties, the more likely your lender is to offer support or hardship solutions, such as:
Modifying your payment schedule.
Deferring your payments for a period of time.
Lowering your interest rate.
Allowing you to just pay interest on the loan for a period of time.
How to prevent missed business loan payments
If you’ve missed a loan payment, or are worried you might, here are some tips to help prevent it again in the future:
Set up autopay or payment reminders
Setting up recurring, automatic payments through your business bank account will ensure that you don’t forget a payment or miss one due to a clerical error. Keep in mind, you’ll need to make sure that you have enough cash in your account to cover your payment when it’s due.
If you don’t want to set up payments automatically, you can set up payment reminders. You may be able to opt-in to an email or text message that reminds you when your payment is due through your loan provider — and if not — you can set digital reminders yourself through your smartphone or computer.
Review your business finances
Reviewing your cash flow and spending can help you budget more effectively in order to make your business loan payments. If you find your cash flow isn’t sufficient, you might reevaluate your expenses to see if there are any areas where you can cut costs.
It might also be helpful to consult a business professional, like a certified public accountant, who can offer personalized suggestions for managing your finances.
Consider debt refinancing or consolidation
If you think that you’ll continue to have difficulties making your business loan payments, consider refinancing or consolidating your debt.
Debt refinancing
Refinancing your business loan involves applying for a new loan to pay off your existing debt. The goal of refinancing is to save your business money and streamline cash flow by accessing more desirable loan terms. Refinancing can be a good option if you’ve improved your personal credit score or have a longer time in business from when you originally applied for your loan.
Debt consolidation
When you consolidate your business debt, you pay off multiple existing loans with one new loan. A single loan payment makes it easier to manage your finances — and hopefully avoid missing any payments. Ideally, a business debt consolidation loan will also offer a lower interest rate or better repayment terms than your original debt obligations. Like refinancing, to qualify for the best consolidation options, you’ll want to be able to show a lender stronger credentials than when you received your original loans.
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