Will I Qualify for Business Debt Relief With a Recent Bankruptcy?
Filing for bankruptcy can be a difficult decision for any business owner. While it may provide relief from overwhelming debts, it also comes with consequences that can make obtaining credit difficult going forward. So what options exist for obtaining debt relief even after a recent bankruptcy?
How Bankruptcy Affects Future Lending
When a business files for bankruptcy, the public record shows that creditors lost money on debts owed by that company. As a result, lenders view the business as a higher credit risk and may be reluctant to approve financing.
According to credit experts, you may need to wait at least a year after bankruptcy before lenders will consider new credit applications. Even then, interest rates and repayment terms are likely to be less favorable compared to applicants with clean credit histories.
Seeking Debt Relief Soon After Bankruptcy
Debt Consolidation
Debt consolidation rolls multiple debts into one new loan, ideally with better terms. However, approval usually requires good credit, making this path difficult after bankruptcy.
That said, some lenders specialize in consolidation loans for those recovering from bankruptcy. Interest rates are high, but may still beat alternatives like credit cards or merchant cash advances.
401(k) Business Financing
Business owners can borrow against their 401(k) retirement savings without a credit check. While risky, this can be an option for financing soon after bankruptcy when other doors are closed.
The Small Business Administration (SBA) offers general small business loans along with industry-specific programs that may provide financing, even for recently bankrupt businesses in some cases.
Home Equity Loans
If you own your home, a home equity loan or line of credit uses the property as collateral rather than relying on business creditworthiness. This can make approval easier after bankruptcy when business credit is damaged.
Longer-Term Options for Post-Bankruptcy Debt Relief
The above options can provide some immediate financing, but may not offer ideal terms or sufficient funds to meet a business’s needs. The following strategies take more time, but may open up better debt relief options down the road.
Rebuilding Business Credit
Actively focus on rebuilding your business credit score after bankruptcy. Pay all bills on time, maintain low credit utilization, and correct any errors on your business credit report. This restores credibility with lenders over time.
Improving Personal Credit
Lenders view personal credit scores as an indication of how you manage business debts. Maintaining timely payments and low balances on personal accounts helps demonstrate responsibility.
Wait for Bankruptcy to Fall Off Reports
Bankruptcies stay on credit reports for 7-10 years. Once your bankruptcy no longer appears, lenders cannot consider it in new credit applications. This can open up better financing rates and terms.
Offer an SBA Guarantee
SBA-guaranteed loans provide assurances to lenders, encouraging financing even for riskier applicants. While approval isn’t guaranteed, this option improves access to debt relief as you rebuild credit.
Seek Secured Funding Sources
Secured loans use collateral you own rather than credit scores for approval. Pledging business assets or personal property can help obtain financing while rebuilding credit after bankruptcy.
Overcoming the Barriers to Post-Bankruptcy Debt Relief
Filing bankruptcy puts up roadblocks, but does not permanently close the door on obtaining debt relief and financing. Be strategic and patient in rebuilding credit and seeking funding sources tailored for your situation. With time and diligence, you can put your business on solid financial footing again after bankruptcy.
The path forward may not be easy, but take heart knowing there are always options and an opportunity for a fresh start. With a little creativity and perseverance, you can position your business for future success.