What Happens If You Default On A Small Business Loan?

There’s no shortage of ways to fund your entrepreneurial dreams and get your business off the ground. One of the most accessible ways is to apply for a small business loan since you can usually qualify with just a few basic pieces of information and a healthy credit score.

But managing that business debt may not be so easy — especially if your business is still young and income is fluctuating. A November 2023 report from Equifax found that small business loan delinquencies increased in nine of the 10 largest states in the U.S.

So what happens if you can’t pay back your small business loan and end up defaulting on it? Read on to find out more.

A default occurs when you’ve missed multiple loan payments. The default timeframe can sometimes vary based on the lender so make sure you carefully read your loan agreement to understand how many missed payments (as well as what other actions) can place you in default.

Before your account is in default, it’s usually considered delinquent. A delinquency occurs after your grace period from missing just one payment is over, but this can often be rectified by making the missed payment and paying any late fees. The length of your grace period can vary depending on the lender but it typically ranges from 30 days to 90 days.

Similar to your personal credit score, payment history is the single biggest factor in determining your business’s credit score. Since a default means you’ve missed several payments, your credit score will likely suffer significant damage.

That means your business could have trouble qualifying for future lines of business credit. However, some lenders may still extend your business credit even if it carries a less-than-stellar score. For instance, the Bank of America Business Advantage Unlimited Cash Rewards Secured credit card is one contender that’s meant for borrowers with low or no credit history. It’s a secured credit…