A bankruptcy can stay on your credit score for seven to ten years. This impacts your ability to get both personal and business loans. However, if you’re a small business owner, you may need loans to help out your business, even if it’s been years since you filed for bankruptcy. Traditional bank and SBA loans won’t be an option, but there are several ways to get the financing you need.
Use Collateral
Using assets as part of your application for a loan reduces the risk for lenders. If you default on the loan, the lender can claim your collateral to help offset the payments you missed. This is often known as asset-based lending. The more valuable and more liquid your collateral is, the better. Small businesses typically use property or accounts receivable as collateral in order to secure a line of credit or a small business loan.
Use Your Unpaid Invoices
Some businesses are subject to slow-paying customers, especially those who pay through insurance or are billed and don’t have to pay until the end of the month. This can make it difficult to track your cash flow. In an off month, you may need a bit extra cash to stay afloat. Factoring receivables can help. This is where you sell your accounts receivable to a factoring company and get paid in advance a percentage of the value of those invoices. Once the invoices are actually paid off, you can get the remaining percentage back. The benefit of factoring is that you could potentially get much longer terms than you would for other financing methods.
Use Your Future Revenue
There are several types of cash-flow financing, such as merchant cash advances and Automated Clearing House (ACH) cash advance financing. You can get a cash advance for future sales through a company that funds you. This method works best for businesses that are expecting income but need quick financing to boost their monthly cash flow. Just make sure you know how repayment works. With merchant cash advance financing, the lender will take a percentage of your credit card sales. With an ACH cash advance, the lender will take a set amount when the agreed-upon term is up. No collateral is required for these loans, but the fees can be expensive.
Bankruptcy doesn’t have to inhibit you from getting business loans for your small business. Traditional methods won’t be available to you, but you can use faster, more high-risk financing methods to secure the loans you need.