Financing After Chapter 7 Business Bankruptcy: 6 Lenders' Underwriting Rules

The short answer is “yes” you can, but no single rule applies to all lenders. The Small Business Administration, Fannie Mae, FHA, VA and USDA have different rules. The SBA 7a lenders usually want 2-3 years. A bank will use your credit history, even after your company has filed for bankruptcy. You cannot get a discharge in bankruptcy as a partnership or corporation.

Banks that participate in the SBA loan program (7a and 504) have their own lending standards. Most bank officials say they do not grant SBA loans to borrowers with a past bankruptcy. The SBA doesn’t prevent a bank from offering 7a and 504 loans to applicants with bankruptcy, so a minority of lenders do give loans after past bankruptcy. The SBA guarantees up to 75 percent of a 7(a) loan. A bank can be more flexible in this scenario.

After you have gone through bankruptcy, there is no set waiting period before you can apply for an SBA loan. Lenders usually require 2 to 3 years, some will want five, and some will never approve a loan to a previous bankruptcy borrower. Every lender is different.

Explaining Your Filing

The way you explain your bankruptcy is arguably the most important part of the application. It should be 100 percent accurate and complete, and if you take the position that your bankruptcy was caused by factors unlikely to recur, that will help. A strong reason for bankruptcy is the recession and a weak reason is that you cannot define the cause of it. The recession that began in 2008 and the coronavirus pandemic in 2020 caused a lot of bankruptcy filings. If your bankruptcy was caused by the recession and not your own fault, you’ll likely have an easier time explaining your filing and getting an SBA loan.

Since the bankruptcy, have you been responsible, have you rebuilt a credit history, are you making sound financial decisions now, or are you abusing your second chance? Lenders want to see that you have reestablished credit and a positive repayment history over several years. The nature of the business could also be important. The odds increase if you have some background in the particular kind of business, or if it’s a strong business with a good record of success.

After a business fails and the borrower files for bankruptcy, the unpaid loan may be a loss to the bank and to the SBA. With the SBA guarantee, if the bank has not been able to collect the debt in full, the SBA may have paid off a portion. Now, the borrower wants another SBA loan. If the SBA has any claim against the previous owner or officer of the company, whether or not a bankruptcy eliminated the debt, that could prevent getting another loan. If you had an FHA, VA or USDA loan that lost money, the same rule applies. Settling it for less is still a loss. The SBA may waive the requirement if there was good cause. Negotiating an offer in compromise could be a path to getting the loss waived.

Hiding bankruptcy could disqualify you, the SBA form asks about bankruptcy and their background check covers your entire adult life.

Loans Backed by the FHA, VA, USDA and Fannie Mae

If you filed your personal bankruptcy in addition to the corporate bankruptcy, banks must follow guidelines for loans backed by the FHA, VA, USDA and Fannie Mae. Fannie Mae requires 4 years after a bankruptcy for a conventional loan. The Fannie Mae guidelines say that, if bankruptcy was caused by extenuating circumstances, you may be eligible after two years. You can apply for an FHA loan 2 years after your bankruptcy discharge. The VA waits 2 years after Chapter 7 bankruptcy, and USDA loans require 3 years after your personal bankruptcy discharge.

For SBA loans, some banks may give a borrower with good reason for their bankruptcy, good credit now, and a strong business case, a loan with a standard low interest rate. Other banks may charge a higher rate. Even the worst-case SBA interest rate, usually prime plus 3 percent, is less than most other loan options. If you buy or expand real estate, the loan is 25 years, so a very low monthly payment, business acquisition is 10 years.

If you own less than 20 percent of a new business, lenders may not check your credit. Your partner has to be real, not just a straw borrower, to qualify. Personal guarantees are required from an applicant who owns 20 percent or more of the business. Under the new rule, effective June 1, 2025, the entire business must be acquired to qualify for the exception.

The Small Business Administration has no minimum credit score requirement for loans over $350,000. Many lenders will require a 620 to 680 score, and a few do not have a minimum score. Applying for a loan from banks or lenders who accept lower credit scores is another way to improve your chances.

Every lender weighs the importance of these elements differently. If one bank says no, that does not mean that every lender will say no. If you’re interested in an SBA loan, or any loan, don’t make assumptions about whether you qualify. Instead, check with multiple lenders and find out exactly what you’re eligible for and what will be expected of you.