Business people who already have applied for bankruptcy may be wondering whether they will be able to access a small loan to fund their businesses.
And the right answer is: It depends.
Below is a look at ways in which bankruptcy may influence your ability to access a loan — followed with some tips to make your business more attractive to moneylender despite having filed for bankruptcy.
Waiting Time After Bankruptcy
Often times, bankruptcy records will stay on your report for about 7-years. So, as you apply for a loan after this time, your bankruptcy status will not affect your ability to get credit. However, when it happens that it still appears on your report, it can significantly influence your financial well-being.
What can you do then?
Today, often times you may be able to get credit after a waiting period of about 2-years. Besides, the longer you wait, the more you will increase your chances of getting a loan. Where can you turn to when you need financial help?
There are some moneylenders who will be to help borrowers with bankruptcy in their credit records. However, as a rule, the financing costs and charges may be significantly higher.
How To Start Rebuilding Your Rating
- Avoid spending more than you have
Being declared bankrupt does not mean that you have stopped spending money. Rather, it means that you should be a lot more mindful now than before of your spending. How can you do this? Be sure to live within your means during this period. Avoid spending more than what you have, strive to retain a steady job and be cautious not to miss repayments. Creating and following a budget often a supportive approach which will help you ensure that your money management practices remain on track.
- Work on Your Credit Report
Even when you choose the non-payment plan, it is important that you keep monitoring your report. How can you do this? You can request your credit report each month, look at it thoroughly for any errors or issues and be sure these are amended immediately.
- Reestablish Your Mortgage
Many people are not aware that they are able to revive an existing home loan following a bankruptcy. Many moneylenders would like to see evidence that you hold some continuing payment. If you can provide such evidence, then you can continue repaying the mortgage installments.
- Seek Credit Counseling
When you do not know yet where you took the wrong financial turn, you could consider seeking financial counseling from a professional credit advisor. These professionals can assist you in dealing with your finances legally. Also, they can similarly help you improve your budgetary flexibility slowly by slowly.
- Get A Personal Loan
Traditional banks may not approve your loan applications but instead licensed moneylenders will. Look for a moneylender who does not base the loan approval on your report, request for a personal loan, and strive to repay it on time. Normally, getting an approval for a personal loan is a suitable approach to begin improving your record status.
Tips For Improving Your Credit And Separate Business And Personal Credit
Before doing anything else, make sure that you can separate your personal and business funds. How can you go about this?
Given that you have some other business, it may not be possible. Even with this, well-established entrepreneurs with their personal and business finances entwined are prepared to take the risk. In case you have not come up with a strategy to separate your accounts as yet, then you should have it as your first priority.
How then can you go about this process? Here are some tips to help you.
- Approach Things Carefully And Slowly
As you take out a loan after bankruptcy, it is recommended you start out small. Do not be in a rush to apply for a $500,000 loan.
What is the best way to go about it?
Apply for a small loan and then repay them on time so as to establish your ability to make repayments and give a sense of achievement for your company. Making prompt payment for your loans can also work to your advantage as it will positively impact your credit record.
- Use Your Assets As Security For New Loans
For borrowers who have bad credit will often have better chances of getting loans in case they have assets they can put up as collateral. Loan guarantees remove a lender’s risk thus making them more willing to approve your loan request.
Like earlier mentioned, it is important that you keep your personal and business finances separate.
In such a situation, would you rather put your home as security for a business loan and risk losing your home if your business fails to pick up? Certainly not.
Similarly, in case you are faced with insolvency, you will actually have no assets to use as security.
- Offer Actual Reasons That Prompted Liquidation
You should consider presenting the actual reasons together with your credit standing so as to bring out what led to your liquidation. Under some instances, uncommon situations may prompt serious budgetary issues.
By analyzing your application, most moneylenders will take into account how unexpected situations such as medical issues, separation or catastrophic events might add to your budgetary inconveniences.
This is without actually exhibiting an unwillingness to pay back your loan installments.
It is important that you recognize that each moneylender has different requirements for qualifying for a loan. And in case you are turned down on your first loan request, that should not mean it is reason enough to give up.
What should you do then?
Continue making efforts to improve your credit record and contact licensed moneylenders for guidance and loan choices.
What about your business?
Basically, the business doesn’t have to stop following an insolvency. Even when an insolvency mark on your report can create more challenges for you as you seek credit. By working tirelessly to rebuild your credit, you will find endless options open to you while moving away from bankruptcy.