Securing a Business Loan After Bankruptcy

Getting a business loan after bankruptcy can be extremely difficult.  The impact of a bankruptcy is long lasting, but there are steps you can take to mitigate the effect.

Business Loan: Bankruptcy Impact

For years, bankruptcy meant that lenders wouldn't consider you for a business loan for 10 years - after bankruptcy cleared your credit. Such is not the case today as banks are more willing to lend money to entities they formerly wouldn't touch due to bankruptcy. In some cases, banks will consider you for a business loan after a period of only one year. But they will want to see evidence that you've got your financial situation in order by demonstrating consistent payback of credit. The easiest way to do this is with secured credit cards.

When banks do consider offering you what may be termed as bankruptcy credit, expect to pay a higher interest rate than you may have paid prior to the difficulties that landed you in bankruptcy court. Your damaged credit rating will also likely result in additional and higher fees you'll have to pay in order to get your "bankruptcy" business loan.

Banks may even require that you have a co-signer, and stipulate that you put collateral or a physical asset down as a security. This is due diligence on their part, since they want to make sure your loan is repaid. In the short term, this may be hard for some business owners who've gone through bankruptcy, but if there is no other way to secure a business loan, it's a necessary requirement.

Business Loan Bankruptcy: Check Your Credit History

Whether your loans were discharged through your bankruptcy proceedings has no bearing on whether or not they were expunged from your credit history. Even though financial institutions are required by law to report such debts as discharged to the credit reporting agencies, not all of them do so. It's up to you to check your credit history with all three nationwide credit reporting agencies (Equifax, Experian and TransUnion), to ensure they have been cancelled by the appropriate bank or lending institution. If you don't do something, they'll remain delinquent on your credit report and sabotage any efforts on your part to rebuild your credit.

What you need to do if you find these errors is bring them to the attention of the credit reporting agencies and ask for them to be cancelled. Other reasons to check your credit history is that credit items (late or missed payments, delinquent payments) remain on your credit report for 7 years, while bankruptcy stays there for 10 years. Also, the information reported and carried by each of the credit agencies may vary, so you need to regularly check all three.

Business Loan Bankruptcy and Rebuilding Credit

Start with a couple of secured credit cards and keep the balances low. Pay the bills on time, every time, along with other credit-worthy bills you may have. Over a period of a couple of years, your credit will steadily improve. So will your ability to secure a business loan post-bankruptcy. The reason you don't want to have high balances on those secured credit cards is that higher balances lower your credit rating. This is what you're trying to avoid. You want to rebuild your credit and raise your credit rating, not the opposite. It also doesn't do any good to pay your bills early. This practice doesn't get reported to the credit agencies. They are only concerned with whether you paid your bill or were late - and how high your balances are.

Next Steps

After you've rebuilt your credit, ensured that your credit history is cleared of any discrepancies, now it's time to go ahead and approach your potential lender for your business loan. Make sure you have a strong business plan, reasonable objectives and come prepared to put down collateral or assets to secure the loan, along with a co-signer, if needed. If you've followed all the steps, and have a good business proposal, your chances of obtaining your a business loan will improve.