It’s possible to get a business loan after filing for bankruptcy, but your options will be limited. The type and circumstances of your bankruptcy can also affect whether you qualify.
You’ll have a better chance of getting approved if you filed for bankruptcy at least three years ago. If your bankruptcy wasn’t business-related, you may also have a better chance of approval. But since business lenders often require good credit, you may need to consider business loan alternatives while your credit is recovering.
Key takeaways
You can get a business loan after Chapter 7, 11 or 13, but options are limited and your odds improve if the bankruptcy was years ago and not business-related.
SBA loans are still possible post-bankruptcy, yet approval hinges on the lender; a strong plan and written explanation help, and a Chapter 7 drops off credit reports after 10 years.
Approval during an active bankruptcy is unlikely. Most lenders won’t approve and many require credit scores near 660, so traditional financing is typically off the table.
Boost your chances by presenting a solid business plan, reducing outstanding debt, explaining the bankruptcy, waiting for time to pass, considering a cosigner and targeting lenders open to past bankruptcies.
If you can’t qualify yet, look at alternatives like microloans, invoice financing or merchant cash advances — easier to get but often costlier, with fees that can add up fast.
12 lenders that work with a past bankruptcy filing
Every lender has its own policies on extending business financing after bankruptcy. While some won’t want to see it on your credit report, a few of these providers are willing to consider your application even if you’ve declared bankruptcy within the past few years.
To get a business loan after bankruptcy, you’ll need to show that business financials are strong. Take the time to improve your credit and focus on seven factors to increase your chances of approval.
Have a solid business plan Before setting foot in a bank or starting an online application, make a strong case for why you need this money. Put together a solid business plan that proves to the lender you’re thinking ahead and know exactly how you’re going to use and repay your loan. After a bankruptcy, instilling confidence in your lenders is important.
Limit your outstanding debt Bankruptcy alleviates much of your previous debts and obligations, giving you time to sort out your finances and repay any debts that couldn’t be discharged. For the first few years after bankruptcy, you may have trouble getting new credit from wary lenders. Limit your outstanding debt to show lenders that you’ve turned a new leaf.
Explain your previous bankruptcy Consider writing a statement explaining your circumstances, including the reasons that led to default — a divorce, accident or illness, for example — sticking to the facts without too much emotion and explaining how your circumstances have changed since then. Show the lender that you have what it takes to bounce back after bankruptcy and can take on a new business loan.
Take your time While you may want to start rebuilding your credit quickly, you likely won’t find the best rates and terms with a fresh bankruptcy on your credit report. The more time that passes, the better you look to lenders. Pay down debts that weren’t discharged in your bankruptcy to rebuild your credit score and prove that you’re responsible with your money after such a large financial setback.
Get a cosigner or coapplicant Some lenders allow you to apply with a cosigner if your credit history isn’t strong enough to qualify on your own. A cosigner is responsible for the loan if you default but not responsible for repayments. Consider the risks before allowing someone to sign a contract with you.
Choose the right lender Lenders vary widely in their policies regarding business bankruptcy, but you may have more luck with an online bank. For example, online lenders like OnDeck and SmartBiz harness technology to analyze multiple data points, rather than your credit score — and may be willing to lend to you as soon as two or three years after a bankruptcy.
Consider different types of financing Some nontraditional business financing options don’t consider your credit score at all. These include invoice factoring or financing and merchant cash advances which can be much easier to qualify for since you’re backing the financing with your collateral.
It’s possible to get a SBA loan after bankruptcy, although it can be more difficult to find a lender. If you’re applying for a loan from the Small Business Administration (SBA) 10 years after declaring a Chapter 7 bankruptcy, the filing will be off your credit report.
However, if your bankruptcy is more recent than that, you’ll want to include a strong business plan, as well as a written explanation for your bankruptcy. This might include discussing major events such as a divorce, an accident or serious illness that led to your filing.
When it comes to SBA loans, it’s ultimately up to the lender to determine how much to factor a past bankruptcy into the decision-making process. The SBA itself doesn’t have any specific rules regarding bankruptcy.
Can I apply for a business loan with an active bankruptcy?
You can apply for business financing during a personal chapter 7 or 13 bankruptcy — though you can’t use a personal loan to finance your business. Still, the chances of getting a traditional business loan while you’re in chapter 13 or chapter 7 — including an SBA loan — are slim to none. Most lenders don’t work with borrowers in active bankruptcy proceedings and many require a minimum credit score of 660. An active bankruptcy will push your score below this threshold and make you ineligible.
However, if your business is in bankruptcy proceedings, you won’t be eligible for a loan. And if you try to access consumer credit during Chapter 7 or 13, the judge could throw out your bankruptcy case. Consult a bankruptcy lawyer if you’re unsure about using credit during the proceedings. Look for a legitimate lawyer through the American Bar Association or the federal court system.
Consider these 3 business loan alternatives
If you’re having difficulty securing a traditional business loan after bankruptcy, these financing options tend to have less stringent requirements. However, they’re more costly compared to what you may pay in interest for traditional business loans and may not be worth it in some cases.
Microloans. Microloans are small loans starting at $500, but come with high interest rates and shorter repayment terms. These loans can also be slow to fund and require business owners to take a class through a nonprofit business center, making them impractical if you need fast cash.
Invoice financing or factoring. This type of financing involves using your invoices for collateral in exchange for cash. You can typically get 80% up front and the rest when the lender collects on the invoice. It’s a quick way to get cash — often within 24 hours — but you’ll pay a fee between 2% to 10% of the invoice.
Merchant cash advances. This option lets you borrow against your credit card sales, with funding in as little as 24 hours. With merchant cash advances, you make daily or weekly payments that are a percentage of your sales plus a factor rate. Because APRs can reach into the triple digits, this option is best for emergency situations only when cash is tight.
Bottom line
While you can get a loan after bankruptcy, it can take several years before your credit has recovered enough to qualify for favorable rates and terms. Alternative lenders may be a better choice while your credit is recovering.
Explore the top business loan guides to help you along your business journey. From information on the best business loans on the market or your best startup loan options, to business loans that require little to no paperwork and more.
Kat Aoki was a personal finance writer at Finder, specializing in consumer and business lending. She’s written thousands of articles to help consumers make better decisions on their home loans, bank accounts, credit cards, cryptocurrency and more. Kat is well versed in working with leading brands in the real estate, mortgage and personal finance industries, and her expertise has been featured on Lifewire and financial comparison sites like iSelect and realestate.com.au. She holds a BS in business administration from California State University, Sacramento and enjoys hiking and yoga in her spare time.
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