Many small business owners and entrepreneurs wonder if they can still qualify for a small business loan after filing for bankruptcy. The answer is yes. The loan application may take a little longer to complete and be more challenging, but it’s still possible.
Steps for Getting a Business Loan After Filing for Bankruptcy
Bankruptcy can be very complicated and extremely stressful. A Chapter 7 bankruptcy will stay on your credit history for up to 10 years, and a Chapter 13 filing will stay for seven years. Your credit score will also decrease. The amount it decreases depends on your credit score when filing for bankruptcy. To help you post-bankruptcy, we’ve put together some strategies for getting a small business loan.
1. Separate your personal credit from your business credit
It is important to establish a business credit score to rebuild your credit. First, check whether you already have a business credit file. When applying for small business loans after bankruptcy, provide proof that your business credit is separate. Separate credit prevents any problems from your personal credit, having negative effects on your business.
2. Disclose your small business when filing for personal bankruptcy
Failure to mention your small business when filing for bankruptcy could cause you significant problems down the road. Your trustee must be made aware of all your assets to know what can be used to pay your creditors. Declare all valuable personal assets on your bankruptcy filing. If you do not, creditors could try to seize them as business assets.
3. Getting a small business loan with an existing lender
A financial institution may be easier in its loan requirements if you’ve previously received a loan or have a current loan with them. Your lender might not be worried about your personal bankruptcy as much if you show you make timely payments on loans and provide all necessary documents.
4. Consider alternative loan options
It will be much harder to secure a loan if you do not have a previous bank history. They will likely require your personal credit score and charge high-interest rates. Merchant cash advances and invoice financing are other options to consider. Receiving a line of credit from a revenue-based financing source doesn’t rely on your bad or good credit. The financial institutions are more concerned with your customer’s credit report since they are the ones who will be paying the financier back at the end of the waiting period.
5. Develop a business plan
If you already have a business plan in place, now is the time to update it. A business plan is a critical part of the loan application process. Detail how you plan to operate your business, provide predicted revenue and operational costs, and outline business contingencies. Furthermore, present realistic facts and numbers to provide evidence behind your predictions.
6. Keep low credit card debt
Keep your credit card debt low to show you can afford to make payments and aren’t overextending. After filing for personal bankruptcy, don’t max out your available credit by opening as many credit cards as possible. Doing this will hurt your chances of securing a loan. Lenders will sometimes look at your personal credit history to see how you handle your finances before extending you a business loan.