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Can I Get Business Loans After Bankruptcy?

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“Can I still qualify for business loans after bankruptcy?”

It’s a question small business owners and aspiring entrepreneurs who have suffered that fate may ask when looking for financing. If you want a fresh start, a past bankruptcy need not be a life sentence. It is possible to get approved for a business loan after bankruptcy.

Realistically, it will require you to put together a strategy and expend extra effort. And it may take a while and involve a series of baby steps, but in time it is possible to overcome the effects of bankruptcy on your financial prospects.

A bankruptcy will stay on your credit history for 10 years in the case of Chapter 7 and seven years from the filing of Chapter 13. Also, expect your score to plummet — 130 to 240 points depending on your credit score, according to a FICO scoring model. Nevertheless, you can take action to improve your chances of getting that business loan or find capital from alternative sources.



How Do I Get a Business Loan After Bankruptcy?

Getting a business loan following a Chapter 7 bankruptcy or Chapter 13 bankruptcy will be tricky, especially in the current economic environment. The following strategies can help:

1. Get a Secured Credit Card

Secured credit cards require a cash payment as collateral (That’s why they’re called “secured.”) That deposit serves as your line of credit. While it’s not the ideal, secured cards are a way to rebuild your credit and have the functionality of a credit card for purchases.

2. Pay Your Bills on Time

We cannot overstate the importance of paying bills on time. It has the greatest impact on your credit score of all the contributing factors. If you do it long enough, you prove to lenders than you can manage your finances and stay out of trouble.

3. Consider Alternative Lending Options

Banks and other traditional lenders may be reluctant to offer a loan after bankruptcy — federal and state regulators tie their hands. One option is alternative lenders that provide term loans and lines of credit, albeit at higher interest rates and fees. Your chances of getting small business loans for bad credit are higher; just understand the risks and potential liability if you’re unable to make payments.

Revenue-based financing, such as merchant cash advances or invoice factoring is another option — so long as your business is bringing in solid sales. These financing sources generally aren’t that concerned with your credit score, although they may run a soft credit check on your personal or business credit.

Asset-based loans are yet another option worth considering, particularly when approaching a bank.

“Traditional lenders are going to look to cash flow, assets, or some type of security,” said Luis Salazar, a bankruptcy attorney in Miami, Florida, in an interview. “The best security is a strong piece of collateral that you know you could sell to recover your loan.”

Another option, crowdfunding, isn’t dependent on credit scores, but you’ll need to invest in a marketing campaign or have a loyal customer base willing to pitch in.

4. Get a Cosigner

Some lenders allow you to apply for a loan using a cosigner. The risk to the cosigner is that they become responsible for the loan if you fail to make payments on time or, worse, default. Also, they receive no benefits to their credit if you repay on time. Make sure the person understands those risks before signing on the dotted line.

5. Present a Business Plan

Hari R. Ender, bankruptcy attorney, writing for Nolo.com, said, “Before you try to get credit for your business, make sure you have a solid, organized business plan to present to potential lenders. The industry in which you are seeking a loan might also make a difference as to your success.”

6. Share Bankruptcy Details with Lenders

Marina Vaamonde, a commercial real estate investor in Houston, Texas, advises business owners to create a timeline accompanied by a set of factual documents that will allow them to share their bankruptcy story.

“Include an overview of how and why you fell into bankruptcy,” she said. “Have a detailed explanation with examples of how you have been managing your business and finances after the bankruptcy. The presentation should allow the lender to learn more about your situation and have a more positive impact on your application.”

There is a place on your credit report to submit a brief explanation of what major event caused your financial difficulties and how it is different now. Typical causes are divorce, hospital bills, extended illness, or a car accident.

7. Avoid ‘Reaffirmation Agreements’

You may volunteer to make repaying your creditors part of the contract — a “Reaffirmation Agreement” — even if you can discharge your debt. Salazar says that’s a bad idea that you should avoid.

“I’ve often had clients say they want to include paying certain creditors back as part of the terms of the bankruptcy,” Salazar said. “I tell them, you can always voluntarily pay someone back, but don’t file bankruptcy and make an agreement that you will pay them back, even though you feel an emotional and moral obligation. If your fortunes turn, you can always send money, but don’t agree to do that in the contract.”

8. Keep Your Credit Debt Level Low

Keep your revolving credit debt as low as possible — below 20% is best — to show that you are not overextending and can afford to make payments. Also, keep in mind that your personal credit affects business borrowing. (That’s especially true for minority business owners who rely heavily on personal scores.)

“If you are cash poor, make sure you don’t take on more loans post-bankruptcy, as it could hurt you,” said Leslie H. Tayne Esq., founder and head attorney at the Tayne Law Firm, in an interview. “Following bankruptcy, it’s not unusual to get credit card offers. Don’t put your personal credit on the line by taking everything you can and maxing out your available credit.”

She added that lenders will look at your personal credit report to see if you have been managing your finances responsibly. “A credit report tells a lot about a person,” Tayne said. “Getting over-extended again could demonstrate a pattern of behavior, making it harder to get a loan.”

9. Go the Friends and Family Route

If you are still having trouble getting a loan after bankruptcy, consider turning to friends and family. The Federal Reserve Bank 2020 Small Business Credit Study (PDF) found that 56% of business owners have relied on friends or family, as well as personal funds — the biggest source of financing — to finance their enterprise in the last five years.

If you decide to go that route, find someone with good credit who can add you as an authorized user to his or her account. Your credit use gets reported in both your name and the primary account holder’s name. Also, you may be able to get a friend or family member to cosign on a loan. Just make sure they understand the risk.

10. Bide Your Time

Our last piece of advice is to wait. It takes up to 10 years to discharge a bankruptcy. If you can’t wait that long to apply for a business loan, you may have to hold off at least a year and likely longer. Even alternative lenders require a waiting period before they will consider making a loan. SmartBiz, for example, requires a three-year waiting period while Funding Circle mandates seven. Some, like OnDeck and DealStruck, are more lenient. They only need a two-year waiting period.

FAQs About Bankruptcies and Loans

The above points will help you create a strategy to get a loan after bankruptcy and improve your credit scores. The answers to the following frequently asked questions provide additional information about the impact of bankruptcy on business loans:

Can you get new business loans while still in Chapter 13?

Getting a business loan while in Chapter 13 bankruptcy will be tough, but not impossible. The Bankruptcy Code allows you to incur certain types of new debt, but you will need to get the court’s permission and be current on your plan payments.

What happens to my existing business loan if I file a Chapter 7 or Chapter 13?

Filing Chapter 7 bankruptcy discharges any personal liability for the business loan but not the debt itself. The reason is, unless you are a sole proprietor, the business is a separate legal entity and remains responsible for replaying the obligation.

A small business set up as an LLC or corporation cannot file Chapter 13 because it is for personal use only. Sole proprietors can file Chapter 13, however, and reorganize and pay back both their personal and business debts, including loans.

Can I discharge an SBA loan in bankruptcy?

Many people mistakenly believe that because the SBA is a federal agency, loans are not dischargeable in bankruptcy. The truth is, you can discharge an SBA loan. There is a catch, however. If you pledged any assets as collateral, bankruptcy would not remove the lien, and the lender can foreclose on or repossess that property.

Wrap Up

Although bankruptcy will drop your credit score dramatically and stay on your credit file for 7-10 years, you can still qualify for a business loan. And because you could have less debt and cannot declare bankruptcy again right away, some lenders may consider you less of a risk.

Take steps now to improve your personal and business credit so you can demonstrate that you are a better credit manager. Even though some lenders don’t require your bankruptcy to be fully discharged, the longer it has been since you filed and the lower you have kept your debt, the better.

If you are a business owner who is considering filing bankruptcy, speak with a bankruptcy attorney. He or she can explain the laws clearly and show you the best options for protecting your business interests.

Image: Depositphotos.com




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COVID-19 Infects Financial Stability, But Chronic Low Wages Are The Culprit

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The Federal Reserve found in 2019, 37 percent of adults saying they could not cover a hypothetical expense of $400 with cash, savings, or a credit card, instead, they might turn to Payday lenders who can charge up to 400% interest for a two week loan, according to the Consumer Financial Protection Bureau. What’s their Pay-Day loan collateral? The wages and salary the employer has yet to pay. Workers may have to pay up to 400% interest for access to wages and salaries they earned, but have not yet received.

Remember that sinking feeling when you first started work? You might have even wondered why the employer didn’t pay you first. A bi-weekly paycheck means you work for two weeks before getting paid. For those living paycheck to paycheck, this two weeks can put you behind with bad credit and high interest rates and credit card fees.

Though many gig workers want the benefits, union access and labor rights afforded to regular employees, being paid instantly is a substantial perk to a gig. At least one company, Ceridian
CDAY
a global human capital management technology company – may have a partial solution to the payday loans and liquidity problem of “more month than money.” They seem to be having some success convincing their clients that those who work for them want the option to be paid like day laborers.

The company offers a product which allows employers to pay their employees at the employees’ request before pay day. It is not an advance, but rather payment for work already done. Some employers like it. “When you work in a call center, there are some things that aren’t very flexible. We need employees at their desk, on the phones making calls…” said an official for Crescent Bank (via Ceridian’s public relation’s center). “We can’t offer a ton of flexibility with attendance, [but] we can provide a benefit that other shops are not offering,” he said referring to Ceridian’s product.

Employees might be attracted to employers who offer this option, because faster pay could solve a low liquidity problem. Ceridian commissioned a Harris poll survey of 2,070 U.S. adults ages 18 and older — 1,158 who are employed — for three days starting October 19, 2020. The findings (not posted but sent to me privately upon request) are similar to the Fed’s study, one-third of Americans do not have enough saved to cover monthly groceries. This cash poor situation also creates uncertain futures. The Federal Reserve finds only 37 percent of non-retired adults think their retirement savings are on track, while 44 percent think it is not and 19 percent are unsure.

Older Americans tend to have more savings for monthly groceries. 86% of respondents 65 and older report having the required savings compared to 50% of 18–34 year olds. This may say more about the number of years they’ve had to save than their real stability. Older Americans are not out of the woods.

In an ideal world, a near-lifetime of work would afford every older household a financial buffer to cushion a blow to income or health. Most try to have some savings and reasonably priced credit lines in case of unexpected medical bills or joblessness. But in the not-so-ideal world we live in, millions of older households do not have cash savings or other liquid assets to make up for multiple months of lost income.

As a result, financially fragile older households are more at risk of depleting their retirement savings to make ends meet, as evidenced in the current Covid-19 recession. When these households retire — or are forced into retirement—they will have less retirement income and will face downward mobility in the last years of their lives.

STAGNANT WAGES CAUSE FRAGILITY

Most financial fragility is caused by low pay, not the frequency with which low wages are paid. According to the Economic Policy Institute, wages have stagnating over the last 40 years (disclosure: I sit on the board of EPI). “From the end of World War II through the late 1970s, the U.S. economy generated rapid wage growth that was widely shared,” the institute reports. Since 1979 average wage growth has slowed sharply, with the biggest declines in wage growth at the bottom and the middle.

Low wages and the ensuing financial fragility are the result of eroding unions and worker power. Workers no longer have the political clout they once did. And so over the past 40 years, they have only been able to achieve weak and sporadic increases in the minimum wage. These minimal increases have not been enough to keep up with inflation. The real value of the federal minimum wage (currently at $7.25 per hour) has dropped 17% since 2009 and 31% since 1968 (adjusted for inflation). This amounts to about $6,800 less per year for a full-time worker making the federal minimum wage today than for their counterpart 50 years ago.

It’s unlikely employers using products such as Ceridian’s will be able to solve the financial fragility problems of the U.S. That problem stems from 40 years of stagnating wages and waning worker power. In other words, it’s not an issue of how often, but rather how much employers pay their workers.

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A Look Back At Housing 2020: Relief, Reality, And Rationality

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National Geographic has a series called Seconds From Disaster that, according to it’s website, uses “ Advanced computer graphics, forensic science, eyewitness accounts, interviews with experts, archival footage and re-enactments [to] piece together in great detail the events that led to some of the biggest disasters of modern time.” My last few posts remind me of the series; the housing market in the United States really is seconds from disaster at least figuratively. What can stop this from becoming a disaster of government run and rationed housing? The answer is relief, reality, and rationality.

Relief

It’s simple. When you tell people they can’t go to restaurants and bars those businesses can’t make any money and they lay off employees. When those employees don’t get a paycheck they can’t pay rent. Assuming that this intervention – shutting down the economy – is the right thing to do, wouldn’t it make sense to help the people most impacted by replacing some or all of that lost income?

Instead, what government has done is ban eviction. That makes no sense. If people needed food, you wouldn’t advise the suspension of shoplifting laws so people could help themselves to groceries at the local market, you’d get them cash for groceries or you would distribute them to people in need. As I’ve already pointed out, eviction bans are a time bomb of unpaid rent.

Government can solve this problem by having lenders give fast cash to housing providers who have residents with unpaid rent. It would be a forgivable loan and could be settled up in the months ahead with rent rolls and balance sheets submitted and a promise not to try and collect back rent if a loan is made. The wrong thing to do would be to have government distribute the relief; government isn’t set up to give out money, banks are.

Reality

Marriages, car loans, and businesses arrangements sometimes fail. Courts exist to adjudicate disputes that arise when transactions don’t work out. Eviction is no different. The vast majority of rental relationships between housing providers and their customers work out fine. Sometimes there is friction. Sometimes the housing provider is a bad actor. Sometimes the resident is. Housing providers don’t make money by evicting people any more than a bar makes money by throwing out its customers.

Contrary to the hype, eviction is rare in the United States and when it happens it is very expensive, complicated, and usually resolved without a sheriff putting the contents of a rental unit on the sidewalk. I did an analysis of hyped eviction data from Seattle and the actual removals in one year were vanishingly small, just .7 percent of all rental housing. How many of these 1,200 removals were because of bad actors? How many were the product of lost jobs? We don’t know because that data isn’t tracked. What’s important is eliminating the causes of eviction; especially poverty, mental health issues, and addiction all issues that when combined do lead to serious issues that impact housing. Making eviction more difficult helps eviction defense attorneys not residents short on cash or having complex problems.

Rationality

Maybe it’s not the best or the right term, but most human beings are rational actors in any economy. If prices go up, people find substitutes for products with higher prices. If they can’t find a substitute, they make due and change their lives around to get what they need. At the same time, producers strive to get a product to market that meets consumer demand at a lower price. This isn’t ideology it is how the world works. Price sends important signals to people on how to behave, innovate, challenge the status quo, and propose changes. Price isn’t a bad thing it is our best friend.

When housing prices go up, yes, it is because there isn’t enough. I’ve heard very smart people – much smarter than me – dispute this. “It is much more complicated than that,” they say. Well, it isn’t. It is that simple. Smart people don’t like three piece puzzles or crosswords with simple clues. Why go to Harvard or Yale or start a lab at Princeton if housing problems were so simple I could solve them. It’s this kind of lens through which government and experts survey the “housing crisis.”

Avoiding Disaster

A loftier image I often use is that of the Trojan horse, one that has become a trope for ignoring the obvious. Take people’s income away for a good reason then replace that income. Want to avoid the consequences of poverty – like bad credit, evictions, and housing cost burden – work to eliminate poverty. And if you want people to solve problems creatively, get out of their way; they can usually figure out the solution and if you can help, do it.

The fact that housing is a commodity is not the problem. The housing problem is worsened when government and non-profits decide to get in the way of buyers and sellers of housing with rules intended to protect consumers but instead become a proxy for incumbents who see their equity rise with limited supply. We should not subsidize that self imposed scarcity; instead we should encourage more housing everywhere of all kinds for people of all levels of income.

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Maryland Auto Insurance review 2020

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Formerly known as Maryland Auto Insurance Fund, Maryland Auto Insurance was created by the state of Maryland to keep the state’s drivers on the road legally. They offer a transitional solution to uninsured drivers in Maryland and will not turn anyone away, especially those who have a poor credit history, are high-risk drivers and have been denied coverage from other providers.

To help you decide if they are the right provider for you, we have broken down all the details about the types of insurance it offers, available discounts to help you save and how it differs from other providers in the area.

Maryland Auto Insurance

Maryland Auto Insurance provides a broad range of coverages and discounts to meet most driver’s unique needs.

Types of Coverage

The company’s standard car insurance policies cover the minimum amount of insurance required by Maryland law, including:

  • Liability: The minimum amount of liability coverage required by Maryland Law is $30,000 for bodily injury per person, $60,000 for bodily injury per accident and $15,000 for property damage per accident.
  • Uninsured motorist: The minimum amount of uninsured motorist coverage required by Maryland law is $30,000 for bodily injury per person, $60,000 for bodily injury per accident and $15,000 for property damage.
  • Personal Injury Protection (PIP): Maryland law requires insurers to offer their policyholders at least $2,500 in PIP coverage.

The provider will not deny coverage to anyone, as long as they:

  • Are a Maryland resident
  • Own an automobile registered in Maryland OR have a valid Maryland driver’s license
  • Have been canceled or not renewed by a standard insurer for a reason other than non-payment of premium OR have been refused insurance by two (2) standard insurers
  • Do not owe Maryland Auto any unpaid premium.

It also offers additional coverage options like:

  • Collision
  • Comprehensive
  • Towing
  • Rental Car

Cost of Maryland Auto Insurance Car Insurance

Maryland Auto Insurance determines premiums based on risk level, vehicle type, driving experience, location, amount of coverage needs and several other factors. Consumers can request a personalized quote on their website.

One thing that differentiates this insurance provider from others is that they do not factor in credit history when determining the premium, which can help those with bad credit save money.

On average, Maryland drivers can expect to pay the following depending on their insurance coverage selections:

Minimum Coverage Full Coverage
$1,278 $3,764

Discounts

Because this provider is a transitional option designed for drivers who can’t get insurance elsewhere, there are few discounts available. However, they do offer some ways to save money on an auto policy.

Reasons Why Maryland Auto Insurance is a Great Option

Maryland Auto Insurance is a great provider for those seeking coverage after being denied elsewhere, especially those with bad credit or no credit history.

The company also provides great coverage options for high-risk drivers, including Uber and Lyft drivers, towing and rental cars. However, due to their commitment to covering higher-risk individuals, the cost for coverage can be a bit higher than other providers in the region. Be sure to shop around to determine whether or not Maryland Auto Insurance is the best auto insurance provider for your needs.

Due to Maryland Auto Insurance being a nonstandard transitional provider, all applicants must prove at least two other standard insurers have denied them to qualify, so keep that in mind before requesting a quote.

Maryland Auto Insurance Ratings, Reviews, Customer Satisfaction & Complaints

Because Maryland Auto Insurance is not a standard insurance carrier, information about their financial strength and customer satisfaction is pretty limited. However, there are a few resources customers can refer to when determining the company’s customer satisfaction:

  • Better Business Bureau: The company currently is not accredited by the Better Business Bureau (BBB), nor does it have a BBB rating. However, some interesting insights can be gained from customer complaints. Namely, the company appears to be slow to respond to claims requests, especially when handling claims for people who have been involved in an accident with one of their clients.
  • Google: According to their Google My Business listing, the company has 165 reviews and a 2.3-star rating. Again, most of the complaints are from drivers not insured by Maryland Auto Insurance who have been involved in accidents with one of their insured drivers.

Additional Policies Offered by Maryland Auto Insurance

In addition to regular auto insurance, Maryland Auto Insurance offers policies for Uber and Lyft drivers, motorcyclists and scooters and other low-speed vehicles. It does not offer coverage options for homeowners, renters, life insurance or any other type of insurance product besides motorized vehicles.

Frequently Asked Questions

What is the best auto insurance company?

The best auto insurance company is different for everyone and is largely based on personal preference. It’s a good idea to shop around and compare rates from different carriers, then speak with a licensed insurance professional.

What do I need to get a quote from Maryland Auto Insurance?

Receiving a personalized quote from Maryland Auto Insurance is simple. First, you’ll need to be prepared to prove that you are a Maryland resident, possess a Maryland driver’s license and have at least two previous denials from other carriers. Then you can request a quote online.

How do I file a claim with Maryland Auto Insurance?

Maryland Auto Insurance offers 24/7 claims assistance through their online portal and via telephone. Customers can visit their claims reporting service online to file their claim or dial 800-492-7120 to get assistance.

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