How to Get a Business Loan after Bankruptcy

11 Aug, 2016 / Comments: Comments Off on How to Get a Business Loan after Bankruptcy / By

Although bankruptcy can be damaging to your credit, it does not signify the end of the road in receiving a business loan. Causing applicants to be left in a constant state of repayment, bankruptcy is often conceived as a financial death sentence. However, bankruptcy only lasts on someone’s credit report for 7-10 years and will often require a far less waiting period before loan acceptance. Also, business loans can operate differently than personal loans or mortgages in the fact that they rely on the financial success of the business itself, and not its owner. Here are some helpful options to look into in order to increase your chances of being accepted for a business loan.

 

Clarification

All banks, no matter which one may offer the best loan or rate of acceptance, will view specific answers to help judge if you are a safe and worthy investment. The crucial answer or clarification that loan officers are looking for is why did you file for bankruptcy. The reasons for why anyone files for bankruptcy vary, and are subjective to an individual’s circumstances. It is important to retain any legal records that would help explain or support those circumstances such as a medical issue, death of a loved one, or a marital divorce. Loan officers will also be highly interested in your future business plan. A well thought out business plan may be the most important solution to actually receiving a business loan after bankruptcy. If the operational plan looks as if it will be successful as well as low-risk, the bank will look past your bankruptcy to put forth an intelligent investment.

 

Co-Signer

A bank issuing a business loan will see a co-signer as a way to minimize risk. This person can be a family member, a business partner, or even your spouse so as long as they have good credit and a history of paying credit back on time. Co-signers do not always have to be responsible for making monthly payments toward the credit, as you may handle payments on your own. However, co-signers are responsible for any debt that their name is attached to and should fully understand the terms and conditions of the loan before signing. Although a co-signer is not always an option, it is one of the most efficient ways to better your chances for loan acceptance, especially after bankruptcy.

 

Time

As far as time goes, you will always be in a better position to be accepted for a business loan the longer it has been since your bankruptcy filing. Although the bankruptcy will remain as a damaging mark on your credit for up to 10 years, a majority of banks will often require a waiting period of only two years. Some may even allow less of a waiting period before acceptance, but it varies from lender to lender. Be sure to thoroughly read the terms and conditions before signing a loan contract, as there may be differing guidelines and repayment rules for loans given without a waiting period.

 

Rebuilding Credit

Before the bank can determine if you are a smart investment, it is important to demonstrate that you have changed your financial course of action. The perfect way to do this is to show documental proof you are no longer in the financial situation you were in when you filed for bankruptcy. To help your acceptance chances, present information such as recent bill statements that are paid on time, proof of income, and that you have begun to rebuild your credit. If you are unable to take out a new line of credit, you may want to try a secured credit card first. It is crucial to continue to build and repay new lines of credit, as available credit-to-debt ratio as well as on-time payments play key roles toward loan acc

William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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