New Business After Bankruptcy
There is no bankruptcy law that stops you from starting a new business after bankruptcy. You have learnt valuable financial lessons from your previous venture and most likely will not repeat the same mistakes. However, it may be difficult to get credit for your new business after bankruptcy.
Here are some pointers of how to increase your chances of getting credit when starting a new business after bankruptcy.
Keep Business and Yourself Apart
Your business was forced into bankruptcy because you, as sole proprietor or as a partner in a partnership failed to pay your business debt. Your need to consider a different business structure. Businesses such as closed corporations and Limited Liability Companies (LLC) are independent from their owners. Debt that the business owes is not always the personal responsibility of the owners or shareholders. However if you do sign a personal guaranty then this benefit is lost.
New Tax or Employer ID Numbers
You need to obtain new tax or employer numbers if :
- You liquidated a corporation or LLC by filing a Chapter 7 bankruptcy.
- Your business was a sole proprietorship and part of your personal bankruptcy.
Corporations and LLC’s do not receive discharges in a Chapter 7 bankruptcy so if you re-open them, they will be liable for all outstanding debts not paid in full during bankruptcy.
Preparation to get Financing After Bankruptcy
Banks and lenders may ask about your personal credit history even if you are starting a corporation or Limited Liability company before considering your business loan application.
You can be prepared by having the following in order:
- Having a comprehensive business plan
- Partnering with someone who has a good credit score
- Having investors who will provide part of the funds
- Looking for incentives provided for business by communities
SBA Loans – Be Careful
You need to be careful when choosing a Small Business Administration(SBA) option since this option requires personal guarantees for loans and requires you to use your personal assets as collateral to secure a business loan.
Also see: SBA Loan Default
Try other options like trying to get other people to invest in your business, starting a business with little or no capital investment and working as a subcontractor eliminating the need of burdensome capital.
Ensure that you pay all business levies . These levies and taxes are trust fund taxes that the business collects from other people and entities and your business has the responsibility to transfer these funds to the relevant authorities. You may be personally liable for these levies if they are not transferred timeously.
Extending Payment Terms To Your Customers
Extending payment terms for your customers may put you in a position where you cannot meet you debt repayments. You may not be paid at all by certain customers.
Good Business Records
Maintaining accurate and proper business records is imperative, when your loan is up for renewal . You need to provide solid records and documentation to show that your business is doing well and your credit score is improving.
If you are thinking of filing bankruptcy but are afraid that the consequences may affect your chances of starting a new business, speak to our business debt relief lawyers today.