How Soon Can I Get an SBA Loan After Bankruptcy or Foreclosure?
If you’ve gone through bankruptcy or foreclosure, you may be wondering when you’ll be able to qualify for a small business loan from the SBA (Small Business Administration). Getting financing after these events can definitely be challenging, but the good news is, it’s not impossible. The SBA has specific waiting periods and other requirements before they’ll consider your application, but if you meet them, approval is possible.
The Waiting Period After Bankruptcy
If you’ve declared bankruptcy, whether Chapter 7, 11, 12, or 13, the SBA requires you to wait a certain amount of time before getting one of their loans. Here’s a quick rundown:
- Chapter 7 – You must wait 2 years from the date of discharge until you can apply. So if your Chapter 7 bankruptcy was discharged on January 1, 2022, you’d be eligible to apply January 1, 2024.
- Chapter 11 – The waiting period is less concrete here, but generally they want to see that your business has been operating profitably for about 2 years before they’ll consider your application.
- Chapter 12 and 13 – You typically need to complete your repayment plan and get a discharge before qualifying for SBA financing. Once the case is discharged, add on the 2 year waiting period and that’s when you’d be eligible.
The reason for these rules is because the SBA wants to see that you’ve gotten back on stable financial ground before they give you any money. So use the time to rebuild your credit and work on improving your business’s finances.
Waiting After Foreclosure
If your personal home or business property went into foreclosure, the SBA also makes you wait a while before getting one of their loans. Their requirements are:
- You must wait 3 years from the date of foreclosure sale before applying.
- You also need to demonstrate you’ve successfully obtained credit since the foreclosure. This helps assure the SBA your finances are back in good shape.
So if your property was foreclosed on March 15, 2021, you’d be clear to apply March 15, 2024, assuming you meet the other criteria too.
What Types of SBA Loans Can You Get?
Once you’re past the waiting periods for bankruptcy or foreclosure, what kinds of SBA loans may be available to you? Some of the most common options include:SBA 7(a) LoansThese loans can be used for nearly any business purpose – working capital, equipment, expansion, etc. The maximum amount is $5 million and the SBA guarantees 75-85% of the loan to the lender.SBA Express LoansExpress loans offer faster turnaround times and lower loan amounts, up to $500,000. The SBA guarantees 50% of these loans.CDC/504 LoansCDC/504 loans are used specifically to purchase fixed assets like real estate or equipment. They’re delivered in two parts – a bank loan covering 50% and a CDC loan covering 40%.MicroloansAs the name indicates, these offer smaller loan amounts up to $50,000. They’re delivered by non-profit lenders and are popular with very small businesses.
Tips for Getting Approved
While the SBA has specific rules around waiting periods after bankruptcy and foreclosure, they still want to see your ability to successfully manage your business. Here are some tips that can help with getting approved:
- Show improving finances – This is key. Provide tax returns, financial statements showing improved revenues, profits, and cash flow.
- Explain past problems – Be ready to discuss your bankruptcy or foreclosure and reasons they occurred. Emphasize what you’ve changed.
- Improve credit – Having credit scores above 680 will improve your chances tremendously. Pay all bills on time.
- Reduce debt – Carry as little business and personal debt as possible. Lenders worry about high debt levels making it hard for you to repay new financing.
- Pledge collateral – Banks want to know they can recover their money if you default. Assets like real estate, equipment, or investments you can pledge will help.
The waiting periods with SBA loans give you a chance to rebuild your finances and credit. This will make getting approved down the road much easier. Be patient, stick to the rules, and position your business as best as possible.
Specific Rules and Requirements
While we’ve outlined the basic timeframes around SBA loans after bankruptcy and foreclosure, below are some more specific rules and requirements you should know:
- Even after waiting periods, lenders can still deny based on poor finances or management skills. Waiting doesn’t guarantee approval.
- If you file bankruptcy multiple times, you may need to wait longer. Discuss specifics with lenders.
- Personal bankruptcy of business owner must be discharged for 2 years regardless of business structure.
- Business bankruptcy waiting period determined by chapter type and applies regardless of owner’s personal bankruptcy status.
- In some cases, the waiting period may be shorter than 3 years if you have substantial documented extenuating circumstances. But minimum is still 1 year.
- If you’ve had a previous SBA loan that resulted in foreclosure, the waiting period is significantly longer – a minimum 7 years from date of foreclosure sale.
SBA foreclosure guidelinesSo in summary, rebuilding your finances and credit history is key to getting approved for SBA loans after bankruptcy or foreclosure. Expect to answer lots of questions about past events. Be patient and persistent and your business can get that critical financing it needs.