Getting Vendor Credit Approval After Debt Relief and Bankruptcy
Filing for debt relief or declaring bankruptcy can provide much-needed financial relief, but it can also make it challenging to get approved for new credit – including from vendors or suppliers. Here’s what you need to know about getting vendor credit approval after debt relief or bankruptcy.
-The Bankruptcy Stigma
There’s often a stigma associated with filing for bankruptcy. Some people see it as a personal failure or irresponsible financial behavior. Many vendors and suppliers share this bias, making them reluctant to extend credit to someone with a recent bankruptcy.
However, the reality is that medical issues, job loss, divorce or other unforeseen circumstances can sometimes make bankruptcy the best option for getting a fresh start. While your credit will take a hit, bankruptcy is a legal process that provides financial protection and an opportunity to rebuild.
With time and responsible money management, you can bounce back and earn a vendor’s trust again. It starts with understanding how bankruptcy affects your credit, as well as leveraging your positive payment history with existing vendors.
How Bankruptcy Impacts Your Credit
When you file for Chapter 7 or Chapter 13 bankruptcy, it immediately appears on your credit report and lowers your credit score. How much it drops depends on your previous score and other factors. On average, filing for bankruptcy causes a credit score decline of 130 to 150 points.
-The bankruptcy remains on your credit report for 7 to 10 years. The older it gets, the less it impacts your score. You may see your score start to gradually recover after about 2 years, as you begin rebuilding credit.
Getting Approved with a Fresh Bankruptcy
Don’t expect to get instant vendor credit approval in the months following a bankruptcy. Most vendors will consider applicants with a bankruptcy that’s at least 2 to 3 years old. The more recent the bankruptcy, the higher the risk you may still be struggling financially.
Within the first year after bankruptcy, focus on paying bills on time and keeping credit card balances low. After a year, you can start applying for new credit cards or loans to add positive information to your credit reports.
A secured credit card, where you put down a refundable deposit to get a line of credit, is often a good option post-bankruptcy. Use it responsibly to begin rebuilding your score.
Leveraging Existing Vendor Relationships
If you already have vendor accounts in good standing, highlight those positive payment histories in credit applications to new vendors.
-Provide trade references or letters of recommendation from vendors you work with regularly and make on-time payments to. This helps demonstrate you are reliable despite the bankruptcy.
It’s also important to be upfront about the bankruptcy timing. Don’t try to hide it, as it will show up on credit checks anyway. Briefly explain the situation in your credit application and emphasize that you always pay vendors on time.
Offering Payment Upfront
For newer vendors you don’t have an established relationship with, offering to pay COD (cash on delivery) or upfront can help secure credit approval. This reduces the risk for vendors and shows you are committed to paying your bills.
-Once you establish a solid on-time payment history with a vendor, you can request net 30 or net 60 terms. It’s important to honor these terms and never pay late. This helps rebuild your vendor credit.
Using a Business Credit Card
If you have an established business, getting a business credit card in the company name can make it easier to obtain vendor credit, even right after bankruptcy.
Business credit cards aren’t reported on your personal credit. So while your personal score is damaged, your business can start building credit independently.
Just be sure to use the card responsibly and pay on time. Missed business credit card payments can quickly hurt your business credit profile.
Building Business Credit with Vendors
Business credit goes beyond credit cards – it also includes your payment relationships with vendors and suppliers.
Work on building business credit with vendor accounts by consistently paying invoices early or on time. This establishes your reliability as a business customer, separate from any personal bankruptcy history.
Over time, you can request that vendors report your business’ on-time payments to business credit bureaus like Experian Business and Dun & Bradstreet. This helps strengthen your business credit reports and score.
Becoming an LLC or Corporation
Forming an LLC or corporation creates a legal separation between your personal and business finances. Business assets and credit accounts are legally separate from your personal assets and debts.
This separation can make it easier to get vendor credit approval after personal bankruptcy, since vendors are extending credit to the business entity rather than you as an individual.
Using a Business Credit Builder Account
Business credit builder programs are designed to help establish stronger business credit. Participating vendors report your monthly payments to business credit bureaus.
One example is Nav’s Business Boost program, which provides a credit line to make monthly payments. As you pay on time, it helps build your business credit profile. This can improve chances of getting vendor approval.
Being Upfront in Conversations
Don’t hide your financial history when speaking with vendors. They will likely learn about the bankruptcy when running a credit check anyway.
Bring it up directly and explain you are working hard to rebuild credit after a difficult period. Share your commitment to paying all vendor bills on time.
This openness and transparency can go a long way in establishing trust and goodwill with vendors.
Offering Deposits or Escrow Accounts
For vendors that may be hesitant to extend a large credit line post-bankruptcy, offering a deposit or escrow account is a way to provide them financial security.
With a deposit, you pay a negotiated amount upfront that the vendor can tap into if you fail to pay invoices. An escrow account is similar, but the funds are held independently by a third party.
This reduces the vendor’s collection risk exposure while still allowing you to get the products or inventory you need. As you build up your payment track record, vendors may extend you more conventional credit terms.
Patience and Persistence Pay Off
Reestablishing vendor relationships after bankruptcy requires patience and persistence. It likely won’t happen overnight. But as you consistently make on-time payments, leverage business credit tools, and strengthen your business credit profile, more vendors will be willing to extend credit.
Don’t get discouraged if the first few vendors decline your applications. Be patient and focus on building trust and reliability over time. Vendors want assurance they will be paid reliably – give them that by honoring all credit terms.
Over time, responsible money management will help rebuild your business and personal credit. This makes it easier to get the vendor financing your company needs to grow.