Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

Full Bio →

Written by

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

Full Bio →

Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Jul 18, 2021

Advertiser Disclosure

Advertiser Disclosure: We strive to help you make confident loan decisions. Comparison shopping should be easy. We are not affiliated with any one loan provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about loans. Our goal is to be an objective, third-party resource for everything loan related. We update our site regularly, and all content is reviewed by experts.

Business owners can get approved for a business loan after bankruptcy but it depends heavily on several factors such as the level of risk, the type of business and the current lending conditions.

A personal bankruptcy filing will remain on a consumer’s credit report for seven years. This mark will create more tension for future borrowing opportunities, but it does not prevent a consumer from participating in the financing world.

A bankruptcy eliminates a consumer’s unsecured debt, meaning that any debt which lacks collateral does not have to be repaid. This includes credit card debt and personal loans. In order to prevent consumers from frequently filing and deleting their debt, there is a rule stating that bankruptcies cannot be refiled for eight years.

These limitations could allow for a lender to view the bankruptcy in a positive light, according to Lauren Rode, a bankruptcy partner at Consumer Action Law Group.

“These two items may actually put individuals who just completed a bankruptcy in a less riskier category for lenders,” she said.

Jim Albertson, president of small business lender Sunovis Financial, said that his organization does have underwriting sources that look at loan requests if they are past the two year mark. But he added that the list of accepting credit facilities is limited.

One of his credit facilities looks solely at the business history when deciding to approve or deny a new business loan. The credit score for the business, and not the borrower, is more important in the loan process.

“There is no personal guarantee from the business owner and we only look at the past three months’ business bank statements to determine revenue, cash flow, and average daily balance,” Albertson said.

Recently, a medical professional who filed a personal bankruptcy in 2009 was approved for a business loan with Sunovis Financial. The owner was able to prove that his business’ cash flow and business model were stable, which was enough for the alternative commercial lender.

Despite the possibilities, interested applicants should understand the limitations of the current business market.

One reason why potential borrowers face hardship is because exemplary business owners face difficulty getting approved for a loan. Banks and non-banks have tightened their lending standards, creating a difficult lending situation for business borrowers, according to Terry Robinson, CEO of Sunovis Financial.

“Even existing businesses with good cash flow can find it challenging when it comes to obtaining working capital,” he said.

Another item that influences a lender’s willingness to approve a loan is the type of business that needs funding. Startup businesses are already labeled as high-risk, so an owner with a bankruptcy stain on their credit report will likely be turned away from a loan. In comparison, an owner with a stable and established business with several months or years of positive financial transactions would be more appealing to a lender.

One instance where this is not the case is for venture capitalists. These investors, who can lend to businesses at will, are more interested in making a profit quickly. If they decide that a startup or a business is able to make money quickly, such as in the technology field, they might be open to approving a business loan. These cases are rare and depend entirely on the borrower’s ability to find a venture capitalist and explain their business plan.

Each lender is different and it is important to ask beforehand what requirements and documents are needed for a business loan. As a general guideline, a prospective borrower should have the following items ready when applying for a business loan post bankruptcy:

  • An updated business plan
  • Proof of consistent income
  • An explanation of the bankruptcy filing

Despite these preparations, business owners that have lived through a bankruptcy should realize that until their seven year period is over, their chances of acquiring a business loan will be lower than exemplary consumers.

Lenders will not view post-bankruptcy consumers in the same fashion as those with high credit scores above 750.

“They should be prepared to shop around, have a prepared explanation for what caused the bankruptcy filing and be able to demonstrate that their finances have now changed for the better,” Rode said.

It will take considerable effort, but if a consumer wants to strengthen or start a business after a bankruptcy, it can be done.

“With the right guidance, proper explanations, strong finances since the bankruptcy, and seeking out a lender who tends to be more sympathetic … even those with tough credit predicaments will be able to secure loans,” she said.