How Soon Can You Get Equipment Financing After Bankruptcy?
Filing for bankruptcy can feel like the end of the world for a small business owner. Your credit takes a huge hit, vendors stop extending terms, and financing options dry up overnight. But there is light at the end of the tunnel! With some strategic planning and persistence, you may be able to finance that new oven, delivery truck, or computer system sooner than you think.
The Bankruptcy Waiting Period
After you receive your bankruptcy discharge, most experts recommend waiting at least 12 months before applying for new financing. This allows some time for the bankruptcy to age and for you to re-establish positive payment histories.However, this doesn’t necessarily mean you have to wait a full year to buy equipment. There are equipment financing options available specifically for startups and businesses with recent bankruptcies. The rates may be higher and terms stricter than with a traditional bank loan, but at least it gets you the equipment you need to rebuild your business.
Secured Equipment Loans
One of the most common types of post-bankruptcy equipment financing is a secured loan. This means the equipment itself serves as collateral for the loan. If you default, the lender can repossess and resell the equipment to recoup their investment.The fact that these loans are secured by a valuable asset makes lenders much more comfortable extending credit to bankruptcy filers. This allows them to offer financing with less than perfect credit.According to LawInfo, you may be able to obtain a secured equipment loan just 2-3 months after your bankruptcy discharge. This can vary by lender, but is much faster than waiting a full year.Just keep in mind that secured loan rates tend to be higher than unsecured loans – sometimes over 20% APR. And the lender may require a sizable down payment. But when you need equipment financing quickly, it’s an option worth exploring.
Other Fast Financing Options
Secured equipment loans aren’t your only quick financing option post-bankruptcy. Here are a few other ideas to get the equipment you need fast:
Hard Money Loans
Hard money loans are similar to secured equipment loans, except they are offered by private investors rather than banks. This fast-moving private money can be easier to obtain than traditional financing.According to FindLaw, hard money loans typically fund in as little as 5-10 days. This speed comes at a price however – interest rates often exceed 15-20%.
401(k) Business Financing
If you have retirement savings available, you may be able to use your 401(k) or IRA to finance a business purchase without waiting months or years to rebuild your credit. This is done through either a 401(k) loan or 401(k) rollover as business start-up (ROBS) plan.The Avvo small business site has a great overview of how 401(k) business financing works. It’s not the right solution for everyone, but could be an option if you need fast financing.
Online business crowdfunding platforms like Kickstarter and Indiegogo are another way to potentially fund equipment purchases relatively quickly after bankruptcy. You’ll need an appealing campaign and some marketing hustle, but it’s a creative option.Crowdfunding definitely won’t fully replace traditional financing. But it might help bridge the gap or finance smaller equipment needs during your post-bankruptcy rebuilding period.
Don’t forget that some equipment vendors themselves offer financing programs. This ranges from basic payment plans to full leasing options. Terms are often better than high-interest equipment loans, so it’s worth asking potential vendors what financing options they can provide.According to Nav, vendor financing could potentially be available just 1 month after your bankruptcy discharge since it is essentially an extension of terms from the supplier.
Tips for Post-Bankruptcy Equipment Financing
If you do decide to move forward with equipment financing shortly after bankruptcy, keep these tips in mind:
- Shop multiple lenders – Rates and qualification criteria will vary, so cast a wide net.
- Come prepared with a business plan – Showing lenders how the equipment will generate revenue can help secure approval.
- Consider used equipment – Financing pre-owned equipment is often easier and more affordable for those rebuilding credit.
- Make a sizable down payment – The more skin you have in the game, the more comfortable lenders will be.
- Know the risks – Equipment loans after bankruptcy come with above average rates. Don’t overextend yourself.
Rebuilding a business after bankruptcy is tough. Having the right equipment is crucial, but financing can be hard to secure. Just know that while you may need to wait 6-12 months for traditional financing, there are quicker equipment loan options available if you have a solid business plan.
The Bottom Line
While everyone’s situation is different, here are a few general guidelines on how soon after bankruptcy you may be able to obtain equipment financing:
- 1-3 Months – Secured loans if you have strong collateral and income.
- 1-6 Months – 401(k) financing, vendor financing, or hard money loans.
- 6-12 Months – Unsecured loans with strict underwriting.
- 12+ Months – Most traditional financing options.
The early months after bankruptcy require some creativity and persistence to secure financing. But with a sound business plan and willingness to pay higher rates, you can likely finance needed equipment much faster than you might think. Don’t let a damaged credit score deter you from moving forward.