Running your business doesn’t always go as planned. A seasonal slowdown in cash flow, unexpected expenses or an operational oversight — and before you know it, you’ve missed a payment on your small-business loan.
One missed payment likely won’t cause lasting damage — especially if you act quickly. But missing multiple payments can have more serious consequences, such as loan default and credit damage.
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Consequences of missing a business loan payment
The specific repercussions for missing a loan payment will depend on your lender and your established business loan agreement.
Each lender handles a missed payment differently, which is one reason finding the right lender for your business matters so much, Brennan Quenneville, head of SBA lending at Grasshopper Bank, said in an email to NerdWallet. Some lenders move from a missed payment to liquidation or litigation quickly, while others will work with borrowers to identify what's going wrong and find a path forward, he said.
In general, you might see the following ramifications:
❗Keep in mind: Not all of these consequences carry equal weight. The immediate financial costs, like late fees and more interest, are usually manageable and easy to reverse. The bigger risks are the ones that compound over time: a frozen credit line, damage to your credit and if missed payments pile up, default.
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 — or $25 if your previous statement balance was under $100. If your account has been delinquent two or more times in the past 12 billing cycles, 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.
😎 Nerdy Tip
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 fee. Fundbox, for instance, charges a $6 nonsufficient funds 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.” If you’re on Bluevine’s weekly repayment plan, that catch-up payment includes 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.
On the monthly plan, Bluevine instead retries the payment the following week at a higher amount that includes the next month’s interest and any fees.
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 can affect your business credit score right away, 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 your business loan payments to 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 you’re still behind after 30 days, it could hurt your personal credit score.
Your loan becomes delinquent
Generally, your loan becomes delinquent after you miss one payment. Making up the payment brings you back into good standing. If you continue to miss payments, however, your loan will likely fall into default.
Once you've 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. What matters most in that conversation isn’t just flagging the problem, but showing you have a plan to fix it.
Quenneville said it's helpful when a borrower reaches out to let their lender know that they're having issues, but what the lender really wants to know is how those issues are going to be resolved — whether it’s simply a timing issue that'll clear up by next week, or a larger operational problem that requires meaningful change.
“How is the business going to right the ship?... Running a business is hard, and in times of struggle, a lender is looking to see that their borrower has control of the situation and a plan for improving it,” Quenneville said.
The more proactive you are about your difficulties and the clearer your plan for resolving them, the more likely your lender is to offer support or hardship solutions, such as:
- Restructuring 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.
The right option for you depends on your situation. If you’re managing several loans, consolidation usually simplifies things by combining them into one payment. If you have a single loan with a high rate, refinancing will be the best choice. Keep in mind that a recent missed payment can make it harder to qualify, so these are better as proactive moves instead of last-minute fixes.
Debt refinancing
Refinancing your business loan involves applying for a new loan to pay off your existing debt. The goal is to get better loan terms so you save money and improve cash flow. Refinancing can be a good option if you’ve improved your personal credit score or have more time in business than when you first applied.
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 current loans.
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. If your new loan terms are at least comparable to your old terms, however, the benefit of having fewer loans to manage may still be worth the effort.
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