Is It Possible To Get A Small Business Loan After Bankruptcy?

While strong business financials can improve your chances of approval with a bankruptcy on your record, time is your most powerful ally. Bankruptcies, depending on the type, remain on your credit report for seven to ten years. Bank loans are usually out of the question for business owners who have a bankruptcy on their credit report.

Online lenders are more forgiving. Some lenders, such as On Deck and Smart Biz, will make loans to businesses with a bankruptcy history if the bankruptcy occurred within the last two to three years and the business meets all other lending criteria (income, credit score, time in business, and so on).

How To Get A Business Loan After Filing For Bankruptcy

Your credit score has already suffered as a result of mounting unpaid debt by the time you file for bankruptcy. Because credit history is a major factor in virtually every loan approval process, businesses with a history of bankruptcy may have a difficult time obtaining financing. These steps can help improve your chances of approval.

1.Be Patient. In the immediate aftermath of bankruptcy, almost no lender will fund a business loan. Allow time to rebuild your credit and your business, limiting debt and making all payments on time.

While some online lenders will consider a business loan application two to three years after filing for bankruptcy, your options, loan terms, and chances of approval improve with each passing year.

2.Create A Solid Business Plan. A previous bankruptcy will cause your business loan application to be scrutinized more closely. Anticipate and address potential issues by creating a business plan that includes market research, a sales plan, current financial statements, and future financial projections.

3.Prepare A Bankruptcy Declaration. Address The Elephant In The Room On Your Credit Report Directly With A Brief Addendum To Your Business Plan That Explains What Caused The Bankruptcy (And What Has Changed Since Then).

4.Obtain A Co-Signer. A business partner or loved one with a good credit history can co-sign your business loan, increasing your chances of approval after bankruptcy. If you default, your co-signer will be personally liable for the debt.

5.Think About Alternative Business Financing. In the aftermath of the bankruptcy, a traditional term loan or business line of credit may be out of reach, 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, deciding whether to approve your loan based on your customers' payment history rather than your credit score. However, invoice financing is costly — up to 5% of the total invoice value per month, which translates to a staggering annual percentage rate (40% or higher is not uncommon) — and it is only available to businesses-to-business.

Can You Get An SBA Loan After Filing For Bankruptcy?

You can technically get a Small Business Administration loan after declaring bankruptcy. Finding a lender willing to fund your loan, on the other hand, will be difficult. While the SBA does not discriminate against businesses based on their bankruptcy history, approved lenders are largely free to set their own lending criteria. Most online lenders that offer SBA loans have credit requirements of 600 or higher. A bankruptcy will almost certainly lower your credit score below that threshold, so you'd need to improve your score before being approved.

Examine Online Business Loans

A bankruptcy can make it more difficult to obtain a business loan, but that doesn't mean you should accept the first offer you receive. Comparing small-business loans online is a good way to identify your best options and avoid wasting time applying for products that will be denied due to a previous bankruptcy or a low credit score.