How to Get Small Business Loan after Bankruptcy
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How to Get Small Business Loan after Bankruptcy

  • Highlights

  • Wait for some time before applying for loan again

  • Prepare a proper business plan and stick to it

  • Control your debts to improve credit score

  • Build up a reliable revenue stream

‘Bankruptcy’ – the word carries a certain stigma. But bankruptcy does not have to mean permanent failure. There are many examples where people had achieved greatness even after they were bankrupt at one stage. The list includes names like Henry Ford and Walt Disney.

If you have filed for bankruptcy and are trying to turn things around, there are ways in which you can do this, with the help of a business loan. However, it may be more difficult to obtain the loan, due to your financial state. Here are some points you need to keep in mind:

Take your time

Lenders prefer a ‘cooling period’ after bankruptcy before considering your loan application again. This period is not a formal one and does not have any fixed time specified. Generally, the bankruptcy stays on your credit report for 7 – 10 years but lenders are generally all right with a gap of 2 years before you apply again. However, this does not mean that you have to wait for such a long time to start a new venture. Take the time to evaluate the problems faced by your last venture and start implementing the take aways in your new venture. After the gap, when you apply for a loan again, these initiatives can be the deciding factors in your favour.

Prepare a solid business plan

Take your time to make a feasible business plan. It should show positive cash flows, good returns but with realistic assumptions. The financial institutions will be asking for a realistic business plan with specific targets, achievable assumptions and timely repayment schedule. A good business plan can help your loan application gather mileage.

Cut down the size of your debt

Debt can be risky as it magnifies the effect of loss. So, post-bankruptcy, when you are applying for a business loan, make sure your debt is at a manageable state. If you are using too much debt, it will act as a warning signal to potential lenders. They will be uneasy to extend credit facility to you.

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Ensure a steady flow of revenue

You need to make sure that your new business has a steady flow of revenue. And the revenue should be timely converted into cash. It is particularly important to manage debtors. The lenders will check your cash cycle and quality of receivables. These are two areas where many businesses suffer. Once you can fix them, it will be beneficial for your business as well as your loan application.
Out of many things, lenders judge the quality of loan application.The above points reflect the steadiness of your new business. Hence, they are critical for the sanctioning of your business loan.

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