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How to Get a Business Loan after Bankruptcy


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TERMINOLOGY

If you have ever filed bankruptcy, you might wonder whether you can get a business loan after bankruptcy. Bankruptcy is reported on an individual’s credit report for either 7 or 10 years. Many people believe that they will not be able to get another loan during this time frame. However, bankruptcy does not have to be the death toll many believe. It is possible to get a business loan after bankruptcy. Usually, all business loans require a personal guarantee (PG) from an officer of the business. The credit rating of that person is used in the determination for approval or rejection of a business loan. The trick is to get a business loan that is based entirely on the financial condition of the business instead of the owner’s credit status. Here are a few strategies for getting a business loan after bankruptcy.

Accounts Receivable Loans

Every business has to have income in order to survive. Most businesses offer terms to clients whereby they purchase a product but pay for it 10 to 90 days later. This delayed income is called accounts receivable. Businesses can sell their accounts receivable in order to generate instant income instead of waiting up to 90 days for the customer to pay. In exchange for the instant income, accounts receivable loans are made at a discount to the amount the business is owed. Accounts receivable loans are based on the income coming into a business, so the business owner’s personal credit is not a consideration.

Equipment Loans

Every business that sells a product has equipment that is used in the production of that product. This equipment is usually highly customized for the business and can cost upwards of millions of dollars for a single piece. A business owner who has filed bankruptcy can pledge her equipment in exchange for a loan to her business. The loan will be based on the value of the equipment instead of the business owner’s credit status.

Inventory Loans

Inventory loans are similar to equipment loans. The company makes a product. The company’s inventory of the product is pledged in exchange for a loan to the business. The loan amount the business receives is based on the street value of the product produced.

Build a Relationship with a Bankruptcy-Friendly Bank

Every bank that makes loans has its own criteria for approval of these loans. Some banks are more stringent, whereas others are more open in their approval process. There are banks that are more willing to work with borrowers that have filed bankruptcy. The goal is to locate a bankruptcy-friendly bank in your area and start a relationship with it. This would involve having a checking and/or savings account as well as a retirement account or a credit card with the bank. Banks will be more lenient in approving loans for their customers than they would be with someone that does not have any relationship with the bank. Once you have established a relationship with the bank, you can approach it to get a business loan using any of these methods.