Entrepreneurs often plow through the most difficult of obstacles and won’t let anything stop them. Some won’t even let bankruptcy slow them down. Henry Ford, Walt Disney and Milton Hershey are just a few examples of business owners who failed terribly before they succeeded.
What if you are recovering from personal or business bankruptcy and find you need financing; are you out of options? Not necessarily.
Because lenders want your business, there are probably options for you, regardless of your credit history. You can check with Nav to see what loans are best for your needs and credit profile. For now, here are three ways lenders may view bankruptcy.
What Are Your Credit Scores?
Many lenders that offer small business financing check business credit scores, personal credit scores of the owners, or both. Minimum credit score requirements are not unusual but they do vary widely among lenders. Some will accept personal credit scores in the 500s but most are looking for scores of at least 640— 680 or higher, and a few require scores of at least 700.
Bankruptcy has a serious negative impact on credit scores. But it is possible to rebuild credit even after with a bankruptcy on your personal credit report. There are a variety of tools entrepreneurs can use to work on their credit, including credit builder loans and secured credit cards.
Is It Over?
At other times, lenders may simply want to determine the status of any bankruptcy that appears on credit reports. Most small business financing options require that your bankruptcy be behind you; in other words, it must be discharged (completed).
Open bankruptcies (which have not been discharged) can create problems for lenders because of the court’s involvement in the disposition of assets to creditors. Once a bankruptcy is discharged, that discharge should be noted on your credit reports. If that update doesn’t occur within a month or so of the discharge, you can file a dispute with the credit bureau. (It should happen automatically but mistakes do sometimes occur.)
If you are still in the midst of bankruptcy it may be difficult to get financing. If you do find a lender willing to work with you, talk to your bankruptcy attorney to make sure it will not jeopardize your case.
Is It Old History?
Lenders may also look at when the bankruptcy was discharged as an indicator of how long ago it happened.
By law, Chapter 7 and Chapter 13 bankruptcies may appear on personal credit reports for up to ten years from the filing date, though consumer credit reporting agencies will voluntarily stop reporting Chapter 13 bankruptcies seven years after the filing date.
There is no time limit that business bankruptcies can be reported, though Experian removes bankruptcy from commercial credit histories after nine years and nine months. As a bankruptcy becomes older, it can have less impact on credit scores especially if other credit references are strong.
“Some lenders require the bankruptcy to be discharged or dismissed prior to applying for financing,” explains Ben Westerman, manager, credit & lending at Nav. Generally, he says most lenders will be OK with a bankruptcy that’s more than five years old, as long as the business is well established and personal credit has been re-established.
This article was originally written on July 25, 2018.