Bankruptcy can ease an unmanageable debt situation. The court order relieves you of debts that cannot be repaid with existing assets. This way, you get the opportunity to start fresh and reorganize your finances. This is the tastiest part.
Bankruptcy also has a bad ending. This seriously damages your credit profile and creates serious problems with lenders when trying to get small business loans in the future. Many people ask the question: is it possible to get a small business loan after bankruptcy?
The fact is that after bankruptcy, it will not be easy to get a business loan from traditional lenders. Fortunately, some alternative lenders offer small business loans against bad credit…
Bankruptcy takes a heavy toll on your credit score. According to the FICO scoring model, your credit rating can drop by 130-240 points. This makes it difficult to obtain permission to finance a business after the termination of a bankruptcy case.
A chapter 7 bankruptcy stays on your credit report for 10 years, while the effects of a chapter 13 bankruptcy will affect your credit rating after 7 years.
However, the impact of bankruptcy on your credit rating diminishes over time. If you can demonstrate a recent track record showing that your finances have changed, you have a chance to get small business loans in case of bad credit.
Banks and other lenders rely on your FICO rating to assess your liability to pay off debt. They like to see good or excellent grades (680-850) in order to classify you as “risky” and approve you on favorable terms.
Any result below 680 will be marked as “bad risk”. In this case, two things can happen. The lender may deny you a loan or approve a business loan because of your bad credit history. You will face high interest rates and unfavorable lending conditions.
Therefore, banks do not approve of borrowers who have stained their credit reports with a bankruptcy mark.
Alternative lenders seem to understand that bankruptcy doesn’t have to be the fatal nail in an entrepreneur’s life. They have small business loans designed to help people with bad credit obtain business financing. The leaders in this category are online lenders.
The different types of bad loans include:
- Short-term business loans
- Cash advances to merchants
- Secured business loans
- Funding accounts
- Business credit cards for bad credit history
They come with high interest rates, but that’s better than nothing. More than anything else, they will help you recover your credit and will appear to lenders to be a “serious risk” in the future. Here’s how to get a bad credit business loan:
Check your credit score and find out where you stand. You may be surprised to find that your results are not as bad as you thought. Once you know your account, you can improve it and find the perfect lender.
By spending a few months improving your valuation, you can get a higher interest rate and lower borrowing costs. Get a secure credit card, pay bills on time, keep your credit card usage low, and dispute any errors on your credit report.
Share your bankruptcy details with lenders and ask their minimum credit rating requirements. Online lenders and other alternative lenders are more likely to accept people with bad credit or no credit. Banks are much less likely to welcome a “bankrupt borrower” or lend out businesses with bad credit. Once you find a lender, review their terms and conditions to make sure you have a fair deal in your current condition.
As you can see, you can get a business loan after bankruptcy. It is best to seek bad business loans from alternative lenders. Some lenders, such as Camino Financial, do not require a minimum credit rating. They will also help you improve your bottom line and possibly get approved for a small business loan if you can demonstrate an effort to improve your finances.