Business Loans

Getting a Business Loan After Bankruptcy

May 09, 2024 • 6 min read
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      Whether you’ve gone through a personal or business bankruptcy, lenders will consider past bankruptcies when making a loan decision. This post will cover common questions about bankruptcy and how it impacts your loan application.

      Can you get a business loan after bankruptcy?

      Yes, you can qualify for a business loan if you’ve had a bankruptcy. However, lenders will want to see that you’ve rebuilt your credit and will have varying waiting periods before you are eligible.

      When can you qualify for a loan after bankruptcy?

      Bankruptcy policy will vary by lender. Some will require waiting seven years when the bankruptcy will be removed from your credit report. Others will consider your application within two to three years after the bankruptcy is closed if you’ve rebuilt your credit score. Some lenders will disqualify you if you have had multiple bankruptcies.

      Can you get an SBA loan after bankruptcy?

      Yes, you can qualify for an SBA loan if you’ve had a previous bankruptcy. The policy will vary by lender but generally starts at no bankruptcies or foreclosures in the past three years with no more than two total bankruptcies. 

      Types of bankruptcy.

      Chapter 7Known as “liquidation bankruptcy.” It involves selling off assets to pay debts.
      Chapter 11Aimed at businesses, allowing them to remain operational while reorganizing debts.
      Chapter 13An individual’s debt is reorganized into a payment plan over three to five years.

      Chapter 7 bankruptcy

      Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, involves the sale of a debtor’s non-exempt assets by a trustee. The proceeds are used to pay off creditors. This type of bankruptcy is designed for individuals or businesses that don’t have the means to pay back their debts. For businesses, this usually means the end of operations. However, individuals might see it as a fresh start, albeit with a significant impact on their credit report for 10 years.

      Chapter 11 bankruptcy

      Chapter 11 bankruptcy is primarily for businesses, allowing them to continue operations while reorganizing their debts. It’s a complex process that involves negotiating with creditors to modify the terms of the debt without selling off assets. This form of bankruptcy can be expensive and time-consuming but offers businesses a chance to recover and eventually return to profitability.

      Chapter 13 bankruptcy

      Chapter 13 bankruptcy is aimed at individuals with a regular income who want to pay their debts but are currently unable to do so. It involves a repayment plan lasting three to five years, allowing debtors to keep their property while making more manageable monthly payments towards their debt. The successful completion of the payment plan can lead to the remaining debts being discharged. Chapter 13 bankruptcy remains on an individual’s credit report for seven years, offering a less severe impact compared to Chapter 7.

      Waiting periods

      Typically, a bankruptcy will remain on your credit report for at least 7 years. However, because the court filings are public, the fact that you declared bankruptcy would remain part of the public record if someone searches for it.

      Steps to qualify for a loan post-bankruptcy.

      Rebuild your credit.

      Rebuilding your credit after bankruptcy is crucial for qualifying for a business loan. It may seem daunting, but it’s possible with a strategic approach:

      Start by regularly checking your credit report for inaccuracies. Dispute any errors that can negatively impact your score.

      Consider obtaining a secured credit card. This requires a deposit acting as your credit limit.

      Make small purchases with this card and pay off the balance in full each month. This shows lenders your responsible credit use.

      Always make payments on time, keep your credit utilization low, and be patient. Credit rebuilding takes time, but consistent effort will gradually improve your creditworthiness.

      Research lenders.

      Find out which lenders will work with business owners with a prior bankruptcy and the thresholds you’ll need to meet before you apply.  If you apply through Lendio, we can help match you with lenders who will work with someone with your credit history.

      Grow business income.

      Lenders will also consider your business’s current financial standing and future potential when evaluating your loan application. Focus on increasing revenue and building strong cash flow to demonstrate the ability to repay a loan.

      Quickly compare loan offers from multiple lenders.

      Applying is free and won’t impact your credit.

      About the author
      Barry Eitel

      Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.

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