Getting a Business Loan After Bankruptcy

Having to file for bankruptcy is a massive blow to your self-esteem and your business reputation, and building a new business takes a lot of grit and determination. If you think there’s no chance a new lender will trust you with your new venture, don’t lose hope just yet. While, yes, there will be lenders who won’t be willing to look at you until the bankruptcy has been wiped from your history (generally 7-10 years depending on your locality), there are some who will. This article will guide you through your options so you can decide whether jumping back into the world of borrowing is the right move for you.

Important Notice: For SBA Paycheck Protection Loans consider Fundera

Can I Get a Business Loan After Bankruptcy?

The answer to this question is, unfortunately, it depends. When you have a personal bankruptcy, it remains on your credit report for anywhere from 7 to 10 years, making it difficult for you to rebuild your credit score during this time. However, it is still possible to get a small business loan after bankruptcy.

You need to move forward with open eyes – both in terms of your own actions, and in those of your potential lenders. You need to think seriously about if you are ready to take on this new responsibility – though it is uncommon for those who have gone through something as distressing as bankruptcy to make the same mistakes again. Next, you need to be sure you aren’t turning to borrowing out of desperation – would it be better to cut your losses, or will this money help your business grow substantially? Be aware that there will be some lenders who are happy to walk in the morally gray area and lend you money at an interest rate you’ll struggle to afford.

Getting a business loan after bankruptcy is possible, and can be just what you need, you just need to think twice before you commit yourself and your business to anything new.

What You Need to Have Prepared to Apply for a Business Loan Post-Bankruptcy

You need to be able to show potential lenders that your situation has now changed, for the better, and that you are now in a position where you are reliable enough to make loan repayments on time.

You need to have a strong business plan in place that you can show to lenders to outline exactly how the funds will be used, and how you will make your repayments. There will be more weight placed on your business plan during the application process than there would have been had you not become bankrupt. This is why you need to ensure that you work hard on polishing your business plan with as much detail as you can before you even begin to apply for a small business loan after bankruptcy. Even if your credit score is still relatively low when you apply for the loan, a solid business plan can turn the decision in your favor.

If necessary, turn to a professional business plan writing company that specializes in applying for funding – they will know exactly what lenders want to see and will be well worth the investment.

If you are in an industry that has a high rate of failures, such as the foodservice industry or real estate, you will likely be seen as more of a risk to potential lenders. Therefore, you should think about questions they may ask you regarding your business and business plan so that you can have solid answers ready that will reassure the lenders if you are in one of these industries. Of course, even if you’re in a fast-growing market, it’s always good to be prepared for any questions you think may come your way.

Bankruptcy allows you to make a fresh start financially, so make sure that you learn from your mistakes and steer clear of the issues that led to your bankruptcy wherever possible.

Limited Outstanding Debt

It is also important to show potential lenders that you have been able to keep your debt as low as possible since filing for bankruptcy, as this can boost your chances of being accepted for a business loan after bankruptcy. This will show that you are now much more responsible financially, which is what potential lenders want to see.

Gather together documents that verify your new financial stability, such as mortgage, rent, or car payment statements that show you have made payments regularly and on time since the bankruptcy.

Lenders may increase their interest rates because of your bankruptcy, so you must show them that you will be a reliable borrower to keep your interest rates as low as possible.

Explaining Previous Bankruptcy

You also need to be able to explain fully what the reason was for you to file for bankruptcy by attaching a short explanation to your credit report. If your bankruptcy was a result of a life-changing event that was out of your control, such as a major illness, injury, death, divorce, or similar, it will help your chances when potential lenders are deciding whether you can have a loan. Just make sure your explanation is unemotive, so it’s clear you aren’t trying to guilt anyone into lending you money – you’re simply explaining the extraordinary circumstances you were in, and that you fully intend to avoid that at all costs in the future.

Can You Get an SBA Loan with a Bankruptcy?

SmartBiz – SmartBiz can provide you with an SBA Loan after a bankruptcy as long as it has been at least 3 years since it was filed. However, you will more than likely find it very difficult to qualify, and you won’t qualify at all if you have had more than one bankruptcy.

How Long Should You Wait Before Applying?

Obviously, the more time you wait between filing for bankruptcy and applying for a business loan, the better. This means you will have built on your credit, which is the main thing taken into consideration by lenders when deciding who is eligible for a loan.

That said, lenders will allow you to apply anywhere from 1 year after bankruptcy, such as BlueVine, to 7+ years after bankruptcy, such as Funding Circle, when the bankruptcy may no longer appear on your credit report.

It’s also important to note that not all lenders will see your bankruptcy in such a negative light. After a bankruptcy, you cannot declare again for some time, so you essentially don’t have a “get out of jail free” card left. This means that you can’t avoid paying your unsecured debt again.

Which Lenders Offer Small Business Loans After Bankruptcy?

Every single lender will have their own requirements regarding getting a business loan after bankruptcy, but you still have several options available to you:

Best For SBA Loans: SmartBiz

As mentioned above, SmartBiz can offer you an SBA Loan as long as your bankruptcy was 3 or more years previous to your application. SmartBiz offers loans from $30,000 to $350,000 with interest rates between 6.00% and 10.75%. However, you will need to have a personal credit score above 650 and be able to demonstrate that you have enough cash flow to make the repayments on time. It should also be noted that you also need to meet the requirements of the Small Business Administration so SBA Loans can be harder to qualify for.

Best for Term Loans: OnDeck

OnDeck can offer you an online short-term Loan as long as your bankruptcy was filed 2 or more years before your application. OnDeck offers loan amounts of $5,000 to $250,000, with interest rates ranging from 9% to 99%, so this lender can be more expensive than others. However, you only need to have a credit score of 500, so you may find it easier to qualify for a loan with OnDeck, especially if you have not been able to build your credit score back up to a high score just yet.

You can also get a small business Term Loan from LendingClub, as long as it has been 3 or more years since you filed for bankruptcy. LendingClub offers loans from $5,000 to $150,000, with interest rates ranging from 5.99% to 29.99%. They do require a minimum personal credit score of 620, so you will need to build this back up in order to qualify for a term loan with LendingClub.

As with any loan you apply for, you should always compare loans and lenders to ensure you’re getting the best rate. This is particularly important after a bankruptcy, as it’s easy to assume you won’t get approved elsewhere, and take a high rate that makes you uncomfortable. If you’re looking for a business loan after bankruptcy, we’re here to help. Find out more by clicking here.

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