You can get a business loan after declaring bankruptcy, but, at least in the years immediately following bankruptcy, it won’t be easy: your financing options will be limited and your interest rates will be higher.
While strong business finances can improve your chances of approval with bankruptcy on your record, your greatest ally is time. Bankruptcies stay on your credit report for seven to ten years, depending on the type. Bank loans are generally not an option for business owners with bankrupt credit records.
Online lenders tend to be more lenient. Some, like On the bridge and SmartBizoffer loans to businesses with a history of bankruptcy, provided the bankruptcy has not occurred within the past two to three years and the business meets all other loan criteria (income, credit score, duration of activity, etc.).
How to Get a Business Loan After Bankruptcy
By the time you declare bankruptcy, your credit score has already taken a major hit due to the increase in unpaid debt. Since credit history is central to virtually every loan approval process, businesses that have already gone bankrupt often face an uphill battle to secure financing. These steps can help increase your chances of approval.
1. Give it time. Virtually no lender will fund a business loan immediately after bankruptcy. Allow time to rebuild your credit and your business, keeping your debts to a minimum and making all payments on time.
While some online lenders will consider applying for a business loan two to three years after bankruptcy, your options, loan terms, and chances of approval improve with each passing year.
2. Develop a rock-solid business plan. A previous bankruptcy will trigger a further review of your business loan application. Anticipate and solve potential problems with a business plan which outlines your market research, sales plan, current financial statements, and future financial projections.
3. Write a declaration of bankruptcy. Directly address the elephant on your credit report with a brief addendum to your business plan that explains what led to bankruptcy (and what has changed since).
4. Hire a co-signer. A business partner or loved one with a clean credit history can co-sign your business loan, greatly improving your chances of approval after bankruptcy. Your co-signer will be personally liable for the debt in the event of default.
5. Consider other sources of funding for your business. A traditional term loan or commercial line of credit may be out of reach following a bankruptcy, but other types of business loans may be more accessible.
Invoice financing, for example, uses your company’s unpaid invoices as collateral for a cash advance, relying on your customers’ payment history, rather than your credit score, to decide whether or not to approve your loan . But bill financing is expensive – up to 5% of the total bill value per month, which translates to an exorbitant annual percentage (40% or more is not uncommon) – and it’s not available. than for business-to-business enterprises.
Can you get an SBA loan after bankruptcy?
Technically, you can get a loan from the Small Business Administration after filing for bankruptcy. But finding a lender willing to fund your loan will be difficult. Although the SBA does not exclude businesses based on their history of bankruptcy, approved lenders are largely free to set their own lending criteria. Most online lenders who offer SBA loans tend to require credit scores of 600 or higher. A bankruptcy will likely push your score below this threshold, so, at a minimum, you will need to raise your score before you can be approved.
Compare business loans online
Bankruptcy can make it harder for you to get a business loan, but that doesn’t mean you settle for the first offer you receive. Compare small business loans online is a good way to identify your strongest options and avoid wasting time applying for products where a previous bankruptcy or low credit score will get in your way.
with Fundera by NerdWallet