Learn about two types of bankruptcy that could result in denial of your small business loan application
Whether you are a small business owner looking for additional funding, or a newbie looking for startup capital, you’ve probably already read up on the benefits of keeping personal and business finances separate. By making your business its own entity, you can avoid ending up personally liable for business debts, which can help protect you against having any future business bankruptcy affect your personal finances.
However, you may be surprised to learn that this is not a two-way street because a personal bankruptcy can definitely affect your small business finances. Specifically…
…Personal Bankruptcy Can Affect Your Small Business Loan Application
When deciding whether or not to approve you for a small business loan, lenders will definitely be interested in your business plan. However, they will also be looking into your own personal financial history, including your credit score. If you have filed for a personal bankruptcy in the past and it is still appearing on your credit report and dragging down your score, there is a good chance that the lender will decide not to extend financing to you.
The impact of a personal bankruptcy on a small business loan is more pronounced for new or young businesses. In this case there is less information about the profitability of the business for the lender to review, so they have to give more weight to your personal financial history and consider whether your own past indicates you may have trouble managing your debts.
Past Business Bankruptcies Can Also Affect Loan Applications
Of course, if you have filed for a business bankruptcy before, this will also affect your small business loan application. In fact, research has shown that a past business bankruptcy increases the likelihood of a small business loan application denial by a factor of 12.
Need Bankruptcy Advice?
If you are considering filing for either a personal bankruptcy or a business bankruptcy, naturally the decision needs to be made very carefully. If you do decide to file, you may have more than one option as to the type of bankruptcy proceeding to use.
For reliable advice about all aspects of bankruptcy, come to California Bankruptcy Relief. We will work with you to find the right solution for your needs and provide affordable assistance with all the paperwork.
