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Can I Get a Small Business Loan After Bankruptcy?

If you own a business and are filing for bankruptcy, you may be wondering, "Can I get a small business loan after bankruptcy?"  For those filing a personal bankruptcy, this is a good question to ask. A personal bankruptcy is not going on the record of the business unless the business is a sole proprietorship. Thus, the business should be relatively unaffected by the bankruptcy proceeding. However, it will directly impact a business’ credit profile if a business bankruptcy is filed in tandem.

Can I get a small business loan after bankruptcy?

The answer depends on the type of business structure. If the business is a corporation, a bank may hesitate to lend a loan without the guarantee of the owners.  The possibility of a loan will depend entirely on how long the business is in existence, the credit history and the financial strength of a business. Typically, a business needs to be incredibly strong for a bank to be willing to lend a loan without a personal guarantee. This is where there could be an issue.

If a lender requires a personal guarantee from the owners, filing for bankruptcy may make that guarantee no longer as valuable. This could cause the bank to either deny the loan request or to ask for a different personal guarantee.

Other complications

If a business has multiple owners, this is typically not an issue. However, in a small company with only one or two owners, if the owners do not have good enough credit to provide a strong personal guarantee, the loan could be denied. This is something that should be kept in mind prior to filing for bankruptcy.

To answer the question, "Can I get a small business loan after bankruptcy?" one really has to look at the structure of the business and the business’ credit profile. A banker will ultimately make the decision.

Plan ahead

When a business owner is going to file for personal bankruptcy, it is sometimes wise to plan ahead and take out any necessary business loans first. Remember that business debts will not be discharged in a personal bankruptcy. The business itself is not going to be impacted by what the individual owner does.

Given the concerns regarding the strength of the personal guarantee, if new equipment needs to be purchased, a building bought or line of credit established, it can sometimes be best to do that first.

Steps to take afterward

If a business owner files for bankruptcy and then later realizes they need to take out a business loan, it will become even more important to immediately start re-establishing credit. This can be done by taking out a secured credit card, for example, using it regularly and paying it off every month. Showing good credit management can help to re-establish a strong credit profile and improve credit scores.

Call for an appointment

To discuss bankruptcy strategies in further detail, call our office and schedule a consultation.

NOTE: This is for informational purposes only and does not constitute legal advice.