How to Fund a Business After Bankruptcy
Bankruptcy is never a pleasant situation to go through, but sometimes it is an unavoidable one. You might feel that you have no chance of running your own business after filing for bankruptcy, but the truth is that you do have options for business loans even if you are a high-risk borrower. Check out these ideas.
Even as a high-risk borrower, you likely have some options if you have a strong set of assets that you can use for collateral. Assets such as your real estate, hard assets or accounts receivable lessen a lender’s risk and makes it more likely to provide you with the money you need. Asset-based financing is available in amounts of up to $2 million and can have interest rates of up to 25 percent over a term of three years.
Merchant Cash Advance
Does your business accept credit card payments? If so, you may be able to finance it with a merchant cash advance after a bankruptcy. Merchant cash advances allow you to apply for a loan and receive funding upfront. Instead of paying a monthly payment, you give the lender a percentage of your credit card sales each day. This is especially preferable because you only pay what you can afford and never need to make a payment if you don’t make anything. If you have a day with 0 sales, you pay $0. If you make $1,000 in credit card sales and are paying back 15 percent per day, you’d pay $150. Merchant cash advances are available in amounts of up to $2 million.
Accounts Receivable Financing
If you are in an active bankruptcy or just completed one, accounts receivable financing is an excellent way to get the financing you need. This type of loan focuses more on the creditworthiness of your clients and allows you to use unpaid invoices as collateral for a loan. Accounts receivables have rates of up to 2.5 percent over three years and can provide funding of up to $10 million.
Where traditional business loans aren’t an option, factoring receivables may be. Factoring is similar to using accounts as collateral for a line of credit. However, when you factor your invoices, you sell them to another company. You’ll receive the value of the invoice, except a fee, and then receive any remaining money after the client pays the invoice. Factoring covers up to $5 million in funding and has an added bonus in that the purchaser will take care of contacting anyone with past due accounts.
No matter which type of business loans you decide are right for you after a bankruptcy, ensure you work with a reputable lender. Getting into a contract without reading the fine print could leave you in an even worse financial situation, so always research first.