Can you get a business loan after bankruptcy?

Bankruptcy can provide a sigh of relief to unmanageable debt situations. A court order absolves you from debts that can’t be repaid with your available assets. Thus, you get a chance to start fresh and reorganize your finances. That’s the savory part of it.

Bankruptcy has its ugly end, too. It severely damages your credit profile and puts you in serious trouble with lenders when trying to obtain small business loans in the future. It leaves many wondering: can you get a small business loan after bankruptcy?

Fact is, it won’t be easy to get a business loan from traditional lenders after bankruptcy. Luckily, some alternative lenders offer small business loans for bad credit.

How bankruptcy affects your credit score

Bankruptcy has a serious impact on your credit score. Per the FICO scoring model, your credit score may plummet by 130-240 points downwards. That makes it hard to get approved for business financing after the bankruptcy discharges.

A Chapter 7 bankruptcy remains on your credit report for 10 years, while the effects of a Chapter 13 bankruptcy will dent your credit score 7 years down the line.

However, the impact of bankruptcy on your credit score diminishes over time. As long as you can demonstrate a recent track record showing your finances have changed, you stand a chance to get small business loans for bad credit.

Most banks/lenders require a good credit score

Banks and other lenders rely on your FICO score to gauge your responsibility towards debt repayment. They love to see good to excellent scores (680-850) to classify you as a “good risk” and approve you at favorable terms.

Any score below 680 will have you labeled “bad risk.” In that case, two things may happen. The lender may refuse to lend to you or approve you for a business loan for bad credit. You’ll be hit with high-interest rates and unfavorable lending conditions.

Banks, therefore, don’t favor borrowers who have smeared their credit reports with a bankruptcy mark.

Lenders and loans designed for people with bad credit

Alternative lenders seem to understand that bankruptcy doesn’t have to be a death nail in the life of an entrepreneur. They’ve small business loans for bad credit designed to help people with poor credit scores obtain business financing. Leading the pack in this category are online lenders.

Different types of bad credit loans include:

  • Short-term business loans
  • Merchant cash advances
  • Secured business loans
  • Invoice financing
  • Business credit cards for bad credit

These come with high-interest rates, but they are better than nothing. More than anything else, they’ll help you rebuild your credit and appear as a “good risk” to lenders in the future. Here’s how to get bad credit business loans:

Check your credit score

Check your credit score and know where you stand. You may be surprised to find that your score isn’t as terrible as you thought. Once you know your score, you can improve it and find the perfect lender.

Improve your credit score

Taking a few months to improve your score can help you get a better interest rate and lower the cost of borrowing. Get a secured credit card, pay bills on time, keep your credit card utilization low, and dispute any errors on your credit report.

Shop for a lender

Share your bankruptcy details with lenders and ask for their minimum credit score requirements. Online lenders and other alternative lenders are more likely to accept people with bad credit or no credit. Banks are far less likely to welcome a “bankrupt borrower” or lend to a business with a bad credit score. Once you find a lender, analyze their terms to make sure you get a fair deal in your current state.

Get small business loans for bad credit

As you can see, it’s possible to get a business loan after bankruptcy. Your best bet is to look for bad credit business loans from alternative lenders. Some lenders like Camino Financial don’t ask for a minimum credit score. Besides, they help you improve your score and probably, a chance to get approved for a small business loan as long as you can demonstrate an effort to improve your finances.