Increase your chances of approval after bankruptcy with a stand-out application.
Starting or expanding a business is difficult enough. But if you’ve filed for bankruptcy, your progress could grind to a halt. Lenders don’t want to see low scores or unpaid debt in a potential borrower. Don’t let it dash your hopes, however: There are still some financing options for your business after bankruptcy.
Is it possible to get a business loan after bankruptcy?
Yes. However, your options might differ depending on whether you’ve faced a personal or business bankruptcy.
Lenders typically want to know the whole picture behind any bankruptcy listed on your credit report. You can attach a brief explanation to your application that details the reason for any negative line item on your report.
You can also provide a short statement that explains what happened overall that led you to bankruptcy. For instance, divorce, health issues or other circumstances outside of your control might have led to your financial struggles. If you stick to an unemotional account of the facts and how you’ve learned from it, lenders could be more willing to extend a loan despite the bankruptcy.
Lenders often also consider the type of bankruptcy. A personal bankruptcy caused by an accident that left you unable to work is different from a business bankruptcy caused by overextending your resources. The time since your bankruptcy also plays a role: The more time between filing and your application, the more likely you’ve built your credit back up and can show that you’re good for the money you borrow.
Which lenders accept businesses that have filed for bankruptcy?
Every lender has its own requirements when it comes to bankruptcy. Some are willing to accept applications shortly after a business owner goes bankrupt, especially if the bankruptcy wasn’t related to the business. Others won’t look at an application until a bankruptcy is removed from your or your business’s credit report.
|Lender||Is bankruptcy accepted?|
|LoanBuilder||Yes, but the bankruptcy must be discharged from your credit report.||Learn More|
|Kabbage||It depends. A bankruptcy may affect your loan terms.||Learn more|
|BlueVine||Yes, if filed more than three years ago.||Learn more|
|Fundbox||Yes. Bankruptcy won’t disqualify your business.||Learn more|
|Fundation||It depends. Bankruptcy may affect your loan terms.||Learn more|
|OnDeck||Yes, if filed more than two years ago.||Learn more|
|SmartBiz||Yes, if filed more than three years ago.||Learn more|
|Funding Circle||Yes, if filed more than seven years ago.||Learn more|
|LendingClub||Yes, but the bankruptcy can’t be recent.||Learn more|
How can I improve my chances of approval?
You can increase your chances of get approved by taking the time to improve your credit and focusing on the six factors below.
1. Look for secured loans
Secured loans like equipment financing or invoice factoring rely less on your credit history and more on the value of your collateral. Because you’re providing something of value the lender can cash in if you default, you may find easier approval and more competitive rates.
2. 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 prepared and know exactly how you’re going to use and repay your loan. After a bankruptcy, instilling confidence in your lenders is most important.
3. Limit your outstanding debt
Bankruptcy erases many 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 credit — lenders may not be confident that you can repay what you borrow. By limiting your outstanding debt, you show lenders that are responsible with money and that any debts you take on are repaid.
4. Explain your previous bankruptcy
Beyond a brief explanation of your bankruptcy on your credit report, consider writing a statement that describes your circumstances overall. Include the reasons that led to default — a divorce, accident or illness, for example — sticking to a factual account without too much emotion and explaining how your circumstances have changed since then. You want to show the lender that you have what it takes to bounce back after bankruptcy and can handle taking on a new business loan.
5. Take your time
While you may want to start rebuilding your credit quickly, you likely won’t find the strongest rates and terms with a fresh bankruptcy on your credit report. The more time that passes, the better you look to lenders. You can to rebuild your credit score by paying down debts that weren’t discharged, helping to prove that you’re responsible with your money despite such a large financial setback.
6. Get a cosigner or coapplicant
Some lenders allow you to apply with a cosigner or another applicant if your credit history isn’t strong enough to qualify on your own. There’s a big difference in responsibility between these two roles, though.
A cosigner is responsible for the loan if you default, but they reap none of the credit benefits if you repay on time, whereas a coapplicant is equally entitled to the loan funds and responsible for all payments. Talk about the specific risks before allowing a loved one to sign a contract with you.
Secured business loans after bankruptcy
Secured loans are not only a good way to improve your chances of approval, but they can also be an easy way to keep your interest low while you’re working on rebuilding your credit after bankruptcy. With a secured loan, you use your business’s assets as collateral, making it less risky for a lender to take you on as a borrower.
There are multiple types of secured business loans to apply for. You can generally find good deals through equipment loans and vehicle loans, which use the items you’re buying collateral for a loan.
These options work well after bankruptcy because they don’t solely rely on your credit. Instead, your whole profile is weighed alongside the value of your collateral. When lenders have more to work with than your score, you’re more likely to find a strong deal.
There’s hope for your business after you declare bankruptcy. Although it takes time to fix your credit score and prove you have the ability to take on new debts, you can find businesses willing to take a chance with a loan to fund your next venture.