cocredo - company credit checks

Business loans could create false impression

  • 01/10/2020
  • Jane Bray

Earlier this year the Bounce Back loan scheme and the Coronavirus Business Interruption Loan Scheme (which is for larger amounts, but not 100% state-guaranteed) were introduced. These schemes have been a godsend to many businesses who have been struggling financially.

On Thursday 24 September, the Chancellor announced more flexibility for repaying bounce back loans under the 'Pay As You Grow' Scheme – meaning new and existing borrowers can choose to extend the term of their loan to cut monthly repayments. Businesses can also take payment holidays or have periods where they make interest-only payments. 

Over the past few months, lenders have distributed more than £58 billion since the scheme began, with figures from HM Treasury revealing that UK lenders have supported over 1.33 million businesses across the country through government-backed coronavirus schemes.

These schemes are just part of the government’s plan to support businesses of all sizes and from all sectors. Lenders also have a wide range of additional measures available, including working capital extensions, overdraft extensions and capital repayment holidays, ensuring businesses can access the correct support that suits their needs.

At present, such schemes are keeping many businesses afloat but it is worth bearing in mind when running credit reports on businesses, that any lending provided under government-backed schemes is a debt, not a grant and will have to be paid back. These loans can provide a much-needed cash injection and as a result, we have seen a trend in many companies choosing to use this cash to pay suppliers quicker than expected in order to trade.  In many cases, this is a welcomed surprise but there is a nervousness felt across the credit providers in the UK that once this cash has been used up, companies may simply run out of money rather than start to show signs of slow payment.

So, although a supplier may be paying you quicker than normal, don’t be fooled by the fact that the business isn’t under stress.  By running a credit report and then monitoring your customers (and suppliers) you can keep a closer eye on any fluctuations in payment data, both good or bad. You can use this information along with the depth of additional data as part of your due diligence and limit any unexpected surprises.

Our Dual Report is a great tool to get two opinions of a business from two leading providers in the UK, to get a well-rounded view. This will not only look at how well the business was performing pre-COVID but also how that compares with real-time data over recent months and decisions can be made based not only one scorecard, but two.

If you have any questions, please call us on 01494 790600.