Travel businesses’ credit scores have plummeted during the pandemic while other sectors are recovering well from the impact of Covid-19, new research reveals.
Business credit score levels were back up to the pre-pandemic average of 44 by September, compared to a score of 40 throughout most of lockdown, according to Experian, which analyses 2.2 million UK firms.
A business credit score is the measure of a company’s creditworthiness, which is made up from a number of factors to understand the financial position of a business and its level of financial risk.
The score ranges from 0 to 100, with 0 representing a high risk and 100 representing a low risk. It is one indicator lenders use to assess businesses seeking growth funding.
The study found that the travel sector, which has been hit hardest by lockdown restrictions, has fared worse.
Average scores hit a new low of 30.5 in September 2021 – a drop of 30.7% compared to March 2020.
Conversely, the retail sector has shown resilience, pivoting to digital platforms, and continuing to serve consumers despite restrictions and challenges presented by not only the pandemic, but also issues with global supply chains and labour shortages.
While credit scores in this sector are still below pre-pandemic levels, the average jumped sharply in September and stands at 31 – a 19.2% increase compared to the same period in 2020.
When looking at average scores by region, the south-west has led the way, buoyed by an influx of tourism through the summer, averaging at 49.8 between March 2020 and September 2021.
The East Midlands also performed well – averaging 45.6 over the same time period. Organisations in the north-east of England had collectively reached a business credit score of 44 by August, matching its pre-pandemic levels, and since then improved its score to 45 in September.
London businesses were least impacted by the pandemic, despite having the lowest average scores across the UK. Average scores remained consistent at 26 throughout the first lockdown in 2020, only dropping a single point to 25 in December.
The capital remained at this level throughout the 2021 winter lockdown but has since recovered to its pre-pandemic level.
Experian business information services managing director James McGarva said: “Despite ongoing pressures presented not only by the impact of Covid-19, but also other well-documented macro-economic pressures such as labour shortages and global supply chain issues, the ability of businesses to adapt has been impressive.
“By looking at business credit scores on a national scale, we can see how many businesses’ financial circumstances are improving, presenting a lower risk for lenders and therefore enhancing their prospects of getting access to the finance they need to thrive.”