It may feel as though “bankruptcy” is synonymous with “failure,” but that’s not how it was designed. The U.S. Bankruptcy Code is meant to give individuals and businesses drowning in debt a fresh start.
Although many businesses close after bankruptcy, a recent filing doesn’t mean automatic rejection if you apply for a small-business loan, says Lawrence Szabo, a bankruptcy attorney in Oakland, California.
Some businesses survive bankruptcy, especially if it’s brought on by an isolated event, such as a fire or a street closure that temporarily cuts off customers’ access to the business, Szabo says. If you’re determined to rebuild after a business bankruptcy — or start a new business after a personal bankruptcy — small-business loans are still an option for you.
But that doesn’t mean it will be easy.
A 2011 report by the U.S. Small Business Administration found that businesses with a past bankruptcy were almost 24 percentage points more likely to be denied a loan. Bankruptcies damage your credit and remain on your credit report for seven to 10 years. But you can still get a small-business loan before the bankruptcy is wiped from your report. Most lenders require a certain amount of time to pass after a bankruptcy – one to seven years, depending on the lender – before they’ll consider lending to you.
Here’s a rundown of the small-business loans you may be eligible for if you’ve had a recent bankruptcy. You can compare small-business loans based on other factors including APR and terms on our small-business loans page.
If you filed for bankruptcy…
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More than just a waiting game
Although time does play a role, it isn’t the only factor in getting a small-business loan after bankruptcy. Lenders consider your business as a whole during the underwriting process.
SmartBiz, an online SBA lender, is especially understanding of businesses that filed for bankruptcy around the 2008 recession, says SmartBiz General Manager Evan Singer. A business that has had multiple bankruptcies, however, won’t qualify for a SmartBiz loan, Singer says.
BlueVine, an invoice financing company, will consider businesses with bankruptcies as recent as a year ago because the businesses’ accounts receivables secure the loans. The company considers a business’s current health and creditworthiness when underwriting. Still, “the older the bankruptcy, the better,” Bluevine Vice President of Marketing Ed Castaño said in an email.
Lighter Capital – an online company that lends to technology businesses – doesn’t have any hard-and-fast rules about lending to businesses with recent bankruptcies. The company is more concerned with why a bankruptcy happened than when it occurred.
“We want to understand why it happened and how the entrepreneurs handled the situation as an indication on how trustworthy the entrepreneurs are,” Lighter Capital spokeswoman Melody Peng said by email.
The bottom line
If you’ve filed for bankruptcy as an individual or a business, you don’t have to forgo seeking a loan to help build a successful business. Generally, the more time that passes after the bankruptcy, the easier it will be to get a loan. But long before a bankruptcy is erased from your credit report, you could qualify for an online small-business loan.
Find and compare small-business loans
To compare your options, NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business, so that you know which loans you qualify for.
For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
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