Bankruptcy may feel like a giant stop sign on your financial journey, but it doesn’t have to be. Millions of people, including many business owners, have gone through it and later built successful, thriving ventures.
If you’ve experienced a setback and are now thinking about getting a business loan after a bankruptcy, you’re not alone. With the right information and preparation, it’s possible to rebuild your credit, secure funding, and start fresh. This guide will walk you through the basics of bankruptcy, what lenders look for, and the practical steps you can take to qualify for new financing and grow your business again.
Key Takeaways
- You can get a business loan after bankruptcy, but it takes time, strategy, and proof that you’ve turned things around.
- Start by rebuilding your personal and business credit separately to show lenders you're managing finances more responsibly.
- You should wait at least 1-2 years after bankruptcy before applying for most loans, as lenders are more cautious immediately after a filing.
- Lowering your current debt load and avoiding new high-interest credit can improve your chances of loan approval.
- Offering collateral or securing a cosigner with strong credit can significantly reduce lender risk and help you qualify.
- Demonstrate consistent income or revenue with bank statements, tax returns, or financial reports to prove your business is viable.
- Write a realistic, data-driven business plan that clearly shows how you'll use the loan and how you’ll pay it back.
- In your application, be honest and upfront about your bankruptcy, including what went wrong and how you’ve fixed it.
- Explore other funding options that don't rely heavily on credit scores, such as invoice financing, merchant cash advances, or secured loans.
- If approved for funding, manage it carefully—borrow only what you need, stay on top of payments, and use it to build long-term financial health.
What is Bankruptcy?
Bankruptcy is a legal process designed to give individuals and businesses a fresh start when debts become unmanageable. It allows you to reorganize your finances or, in some cases, eliminate certain debts entirely so you can move forward.
For entrepreneurs, understanding how bankruptcy works is the first step toward rebuilding and eventually getting a business loan after a bankruptcy.
How Bankruptcy Affects Your Credit
Filing for bankruptcy does lower your credit score because it signals to lenders that you’ve experienced financial distress. The drop can be significant and may make it harder to qualify for loans or credit cards in the near future.
The exact impact depends on the type of bankruptcy you file. It usually remains on your credit report for seven to ten years from the filing date. However, the effect lessens as you rebuild your credit and show consistent, responsible financial behavior.
Why Do People and Businesses File for Bankruptcy?
Bankruptcy is usually a last resort after serious financial struggles. The reasons vary, but they often stem from unexpected events or business challenges that spiral out of control.
Understanding these causes can help you plan better and rebuild with confidence if you’re considering getting a business loan after a bankruptcy.
Common Reasons for Individuals
- Medical Bills: A sudden illness or accident can generate astronomical medical debt that insurance doesn’t fully cover.
- Job Loss or Income Reduction: Losing your job or a big client can quickly turn a manageable financial situation into a crisis.
- Divorce or Separation: Splitting up assets and responsibilities can burden both parties financially.
- Excessive Credit Card Debt: A pile of high-interest credit card debt can become impossible to pay down, no matter how hard you try.
Common Reasons for Business Owners
- Economic Downturns: A recession or a market shift that is not in your favor can wipe out your customer base.
- Cash Flow Gaps: You have clients who owe you money, but you can’t pay your own bills while you wait for their checks to come in.
- Bad Partnerships: A business partner's poor decisions or personal issues can sink the whole ship.
- Unexpected Lawsuits: A legal battle, even if you win, can drain your resources and put you out of business.
Types of Bankruptcy That Affect Business Owners
While there are several bankruptcy chapters in U.S. law, small business owners, freelancers, and self-employed individuals most often deal with Chapter 7, Chapter 13, and, in some cases, Chapter 11.
Chapter 7 Bankruptcy (Liquidation)
Chapter 7, often called “liquidation bankruptcy,” is the most common bankruptcy for individuals and some small businesses. In Chapter 7, non-exempt assets are sold to repay creditors, and most unsecured debts are discharged. Because these assets are often essential to daily operations, most companies that file for Chapter 7 end up closing afterward.
How it works
A court-appointed trustee takes control of your non-exempt assets, sells them, and uses the proceeds to pay creditors. Once the case is complete, most unsecured debts (credit cards, medical bills, and personal loans) are wiped out.
Who can file
- Your average monthly income over the past six months must be below your state’s median for your household size.
- If it’s higher, you’ll need to pass a “means test” to show you can’t afford to pay off your debts.
- You can’t file Chapter 7 if you’ve already filed in the last eight years, or within six years if you’ve filed Chapter 13.
- If a prior case was dismissed, you must wait at least 181 days to try again.
- You must complete a credit counseling course from an approved provider within 180 days before filing.
Consequences
While it offers a clean slate, it comes at a cost, and this includes a $245 case filing fee, a $75 administrative fee, and a $15 trustee surcharge. In most cases, these need to be paid up front when you file with the court.
Then, your assets may be sold, and the bankruptcy will appear on your credit report for up to 10 years. The process is generally quicker than other types of bankruptcy, often taking only four to six months to complete, from the day you file until you receive your discharge order.
Chapter 11 Bankruptcy (Reorganization)
Chapter 11 allows businesses to keep operating while restructuring debt. It’s more complex and expensive than other options, which is why it’s mostly used by larger companies or partnerships with significant assets. Still, it’s an option some small business owners and even individuals pursue.
How it works
You continue running daily operations as a “debtor in possession,” but under court oversight. You (or the court) create a reorganization plan to repay debts over time, which may involve downsizing, renegotiating contracts, cutting costs, or selling certain assets. Sometimes only part of the debt is repaid.
Who can file
- Businesses that believe they can recover financially with more time.
- In rare cases, individuals who don’t qualify for Chapter 7 or Chapter 13.
Consequences
Chapter 11 can give your business a fresh start, but it’s paperwork-heavy and requires detailed financial statements, adherence to the court-approved plan, and proof that your business can realistically turn around. If fraud or major mismanagement is suspected, the court can appoint someone else to run operations.
Chapter 13 Bankruptcy (Repayment Plan)
Chapter 13 lets you keep your assets while setting up a plan to repay part or all of your debt over time, usually three to five years, rather than liquidating.
How it works
You work with a court-appointed trustee to create a monthly repayment plan for your budget. Debts are rolled into one manageable payment, and creditors can’t take legal action against you as long as you follow the plan. At the end of the plan, remaining qualifying unsecured debts (like credit cards or medical bills) are discharged.
Who can file
- Individuals or sole proprietors with regular income who want to protect their home, car, or other assets.
- Unsecured debt must be under $526,700 and secured debt under $1,580,125 (current limits as of filing date).
- You must have filed tax returns for the past four years.
- You must complete credit counseling within the last 180 days.
- If a previous case was dismissed, you may need to wait 181 days before filing again.
Consequences
Chapter 13 offers a clear, predictable path to get out of debt while keeping your property. However, it’s a longer commitment and requires consistent payments over several years. It stays on your credit report for up to seven years.
Can You Get a Business Loan After Bankruptcy?
Yes, getting a business loan after a bankruptcy is possible, but it can be challenging. Bankruptcy filings are often seen as a red flag by traditional lenders, especially big banks, because they signal higher risk. As a result, many banks will likely deny your application based solely on your credit history.
The good news is that traditional banks aren’t your only option. Alternative lenders, such as Giggle Finance, specialize in helping business owners who’ve experienced setbacks access the cash they need to stay afloat. Instead of focusing only on credit scores or a flawless financial record, these lenders consider your current business performance, revenue, and growth potential.
By showing strong operations, a solid plan, and consistent income, you can increase your chances of getting a business loan after a bankruptcy and rebuilding your business faster.
How to Get a Business Loan After Bankruptcy
Bankruptcy can leave your credit score bruised from missed payments and unpaid debts. Because lenders closely review your credit history, getting a business loan after a bankruptcy can be challenging, especially for small businesses.
The good news is that you can take practical steps to rebuild your profile, improve your chances of approval, and secure financing to grow your business again.
Step 1: Give Yourself Time to Recover
Most lenders won’t approve a loan immediately after bankruptcy, especially within the first 1–2 years. If you can wait, allow 2–3 years for your credit to stabilize. Even though a bankruptcy stays on your credit report for up to 10 years, its impact lessens over time. Use this period to pay every bill on time, avoid new debt, and steadily rebuild your credit so you’re in a stronger position when you apply.
Step 2: Separate Your Business and Personal Finances
Open a dedicated business bank account and credit card for all business-related transactions. This separation shows lenders your business is financially independent and that personal credit issues won’t affect it. A clean divide is especially important when you’re getting a business loan after a bankruptcy because it demonstrates you’ve learned to manage risk more responsibly.
Step 3: Build or Rebuild Your Business Credit
A solid business credit score makes lenders more comfortable lending to you after bankruptcy. To start, get a secured business credit card or a small loan and make all your payments on time with no exceptions. You can also report your payment history to business credit bureaus to help build a positive credit profile that lenders will notice.
Also, keep your credit utilization low and avoid late payments or defaults. Building business credit takes time, but consistent, responsible credit use will improve your chances of getting approved for a loan.
Step 4: Get Ready to Explain the Bankruptcy
Lenders will see your bankruptcy, so address it upfront. In your application or business plan, briefly explain what caused it (market shifts, unexpected expenses, etc.) and what you’ve done to fix the issues. Showing accountability and corrective action reassures lenders you’re less of a risk now.
Step 5: Prepare Financial Documentation
When applying after bankruptcy, your numbers matter more than ever. Collect tax returns, bank statements, profit-and-loss reports, and balance sheets to give lenders a clear, updated view of your business health. Organized documentation signals that you’re running your business responsibly and are ready to handle financing again.
Step 6: Write a Business Plan
A solid business plan can show lenders you’ve learned from the past and have a clear, realistic path forward.
Your plan should clearly outline:
- What your business does
- Your target market and competition
- How you make money
- Financial projections (realistic, not inflated)
- Exactly how you’ll use the loan and how you’ll repay it
Lenders aren’t looking for perfection—they want to see a strategy backed by solid numbers.
Step 7: Apply Strategically
Not all lenders look at bankruptcy the same way. Traditional banks are often the strictest, while online lenders, community banks, and credit unions may be more flexible. Instead of applying everywhere at once, research lenders that have a track record of working with small businesses after bankruptcy.
Submitting too many applications at once can hurt your credit further, so focus on quality over quantity. Apply only to lenders that align with your current credit profile and financial needs. This increases your chances of approval and helps you avoid wasting time on lenders who are unlikely to say yes.
Smart Ways to Strengthen Your Loan Application After Bankruptcy
Once you’ve covered the basics, there are extra steps that can make your application stand out. These tips show lenders that you’re serious about getting a business loan after a bankruptcy, managing your finances responsibly, and lowering their risk.
Reduce Your Business Debt
High debt is one of the biggest red flags for lenders, especially after bankruptcy. Too much debt signals that you may risk falling into the same problems again. Start paying down existing balances, keep credit card use low, and avoid taking on new loans unless absolutely necessary. The lower your debt, the stronger your credit profile looks and the better your chances of approval.
Offer Collateral to Reduce Risk
Providing collateral reassures lenders because it gives them something to recover if you can’t repay the loan. This can include property, vehicles, equipment, inventory, or even outstanding invoices. Valuable collateral can increase your chances of approval and help you negotiate better loan terms. Even if your credit isn’t perfect, collateral shows you’re committed and reduces the lender’s risk.
Use a Qualified Cosigner
A cosigner—someone with good credit and financial stability—can improve your chances of getting a business loan after a bankruptcy and help you qualify for better rates. However, it’s a serious commitment. If you default, your cosigner is legally responsible for the debt. Make sure they understand the risk and that you have a clear agreement before moving forward.
Show Consistent Income or Revenue
Lenders need to see that your business can handle regular loan payments. Show consistent income through recent financial statements, bank records, contracts, or tax returns. The clearer you can demonstrate steady revenue, the easier it becomes to rebuild lender confidence and secure financing.
Reapply With a Lender You’ve Worked With Before
If you’ve borrowed from a lender before and managed the loan responsibly, that relationship can work in your favor. A lender who knows your payment history may be more flexible, even if you’ve filed for bankruptcy. Start by approaching lenders who already know your business, as familiarity can help them look past your credit score and focus on your track record instead.
Alternative Financing Options
Traditional bank loans can be tough to secure after bankruptcy, but they’re not your only path forward. If you’re looking at getting a business loan after a bankruptcy, these alternative financing options can help you access funds and keep your business moving.
Secured Business Loans
Secured loans are backed by collateral like equipment, property, inventory, or other assets. Because the lender has something to fall back on, these loans are often easier to get for borrowers with damaged credit. You’ll still need to show that your business can repay, but the collateral can tip the scales in your favor and lead to better rates or terms.
Invoice Financing
If customers owe you money, you can use those unpaid invoices to access cash right away. A lender advances you a percentage of your invoice value and collects their fee once your customer pays. This approach helps you fix short-term cash flow issues without taking on new traditional debt, making it useful when you’re rebuilding after bankruptcy.
Merchant Cash Advance (MCA)
An MCA isn’t a traditional loan but an advance on your future sales. A lender gives you a lump sum of cash and then takes a fixed percentage of your daily or weekly sales until it’s paid back. Because this option is based on revenue instead of your credit score, it’s a popular choice for businesses with a bankruptcy on their record but strong sales coming in.
With Giggle Finance, getting a cash advance is simple, fast, and designed for self-employed professionals. You can access funds based on your business's current performance instead of waiting for lengthy approvals or worrying about past credit issues. That means you get the cash you need when you need it, without the stress of traditional lending.
Take control of your cash flow. Apply now!
Crowdfunding
Platforms like Kickstarter or GoFundMe allow you to raise money from many supporters. It’s not a loan, so you don’t have to repay it. Instead, you offer rewards, a product, or even equity in your business. This option works best for businesses with a compelling story or product to share.
Peer-to-Peer (P2P) Lending
P2P platforms connect you directly with individual investors who are sometimes more flexible than banks. Some may look beyond your credit score and consider your full situation. However, it's important to note that rates and terms vary, so compare carefully.
Grants
Grants are funds you don’t have to repay. While competitive, they’re worth exploring. Many government programs, nonprofits, and private organizations offer grants to small businesses, especially those in underserved communities or specific industries. This can be an excellent way to fund growth without taking on new debt.
What to Do When You’re Approved for Funding
Getting approved for funding after bankruptcy is a major step forward. But approval is only the beginning—how you manage the money can either rebuild your financial future or set you back again. If you’re getting a business loan after a bankruptcy, follow these key steps to protect yourself and set your business up for success:
Understand the Loan Terms
Bankruptcy often means higher interest rates or added fees, so don’t rush into the first offer you see. Read every clause carefully—know your interest rate, repayment term, fees, and penalties for late or missed payments. Compare offers from multiple lenders. Even a small difference in rates or fees can save you thousands over the life of a loan.
Borrow Only What You Need
Interest costs add up fast, especially if your credit is still recovering. Borrow only what you truly need for your business. Make sure the monthly payment comfortably fits your budget and that you have a clear plan for how you’ll use the funds, such as consolidating debt, investing in equipment, or covering a specific expense.
Set Up Automatic Payments
A single missed payment can damage your rebuilding efforts. Setting up automatic payments ensures you never miss a due date. This builds a positive payment history, which is exactly what lenders want to see from borrowers who are recovering from bankruptcy.
Watch Your Budget Closely
After bankruptcy, your finances deserve extra attention. Track your income and expenses carefully to avoid overspending or taking on new debt too soon. Cutting unnecessary costs helps you stay current on your loan and rebuild your credit faster.
Use the Loan Wisely
A business loan isn’t a solution for everyday cash flow gaps. Don’t use it to cover routine bills like rent or utilities. Instead, direct the funds toward one-off or growth-focused expenses, such as equipment, marketing, or consolidating high-interest debts. This shows lenders you’re managing money wisely and using credit strategically.
Communicate Quickly if Problems Arise
If you anticipate trouble making a payment, contact your lender immediately. Many lenders can offer modified repayment plans or temporary relief if you’re upfront. Acting early can prevent late fees, protect your credit, and keep your business loan in good standing.
Keep Building Your Credit
Use this loan as an opportunity to prove you’re financially reliable. Pay on time every month, keep other debts low, and avoid opening multiple new accounts. Over time, this responsible behavior strengthens your credit profile and makes it easier to secure better financing in the future.
A Fresh Start Is Waiting for You
Filing for bankruptcy is not the end of your business journey. It is often the first step toward a stronger financial future. By understanding bankruptcy, rebuilding your business credit, and exploring flexible funding options, you can secure a business loan after bankruptcy and start moving forward again.
You do not have to wait years to access capital. Solutions like Giggle Finance’s cash advance provide fast and accessible funding based on your business revenue, not your credit score. With a quick application and funds available as soon as the same day, you can cover essential expenses, invest in growth, and stay on track without the hurdles of traditional loans.
Apply today and take the next step toward rebuilding your business with confidence.
Disclaimer: Giggle Finance provides Revenue-Based Financing programs for business purposes only. Any mention of any loan product(s), consumer product(s), or other forms of financing is solely for marketing and educational content purposes and to help distinguish Giggle Finance’s product from other comparable financing options available in the markets.