How do you deal with bad credit, bankruptcy or litigation on a business loan application? What do you say about your bad credit history? Explaining your bad credit history on your business loan application is never pleasant, especially when you are dealing with issues such as bankruptcy or litigation.
Although banks are in the business of lending money and are eager for your business, the truth is that it will be more difficult to secure a business loan if you have bad credit.
When it comes to applying for a business loan with bad credit, the main thing to remember is to be as open and clear as you can. Believe it or not, you will better your chances with full disclosure of your situation. Moreover, keeping things hidden from your lender is not only practicing in bad faith, but it could lead you to some serious legal hot water.
It is important to note that if you have put yourself in a corner with willful deceit or fraudulent business practices, the following suggestions will not be of any assistance.
How to Handle a Bankruptcy
In today’s business world, filing for bankruptcy has become more and more common. Often, it represents a necessary move on behalf of the business owner to deal with overwhelming financial liabilities.
When dealing with bankruptcy, full disclosure is needed for the lending institution to make a fair and accurate offer. When a loan executive considers your credit reports, if the information is scant he or she may very well not understand the full story behind your insolvency.
Therefore, it is in your best interests to provide a full written disclosure of the events leading up to your declaring bankruptcy, the methods used to satisfy your creditors and your performance since that time. If you were discharged from your bankruptcy, it would be good to provide those records also. If you were not responsible for your financial insolvency, you should have written records proving your innocence, including affidavits from third parties substantiating your innocence.
How to Handle Litigation
If you are in the midst of litigation, you must fully document the events leading up to the court action and the results of said litigation. This will allow you to put these events into perspective and give the loan officer an idea as to how the action affected the overall value of your business.
It should be noted that most lending institutions will not offer you a business loan if your litigation is still in progress. They will want to wait to see what the final decision will do to your business value before they make any judgment in regards to your business loan application.
Divorce can also affect your small business loan application even though it may not result in bad credit. If you were in business with your spouse, you should provide full documentation to the loan officer as to how the business was affected by your separation. You should include any divorce papers describing terms, bank records and ownership division. Also, if you were in the process of divorce, it would be better to wait until final judgments have been made so you can make an accurate report to the loan officer.
In general, if you are applying for a business loan with a bad credit history, then remember that honesty is the best policy; it will protect both you and your lending institution.
Many small business owners with bad credit have managed to avoid the difficulty of applying for loans by taking advantage of business cash advances. Business cash advances are solely based on future credit card transactions, eliminating the need for a complete dossier on your life. Since the money is technically yours to begin with, there are no restrictions on its use, no interest charges and no obligation for repayment.