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Starting a new business after filing for Chapter 7

You may have filed for Chapter 7 because you lost your job or had your hours cut back at work and couldn’t find suitable replacement employment. Now you’re thinking about taking your financial future into your own hands by starting a new business.

While there is technically nothing stopping you from becoming an entrepreneur after a Chapter 7 discharge, you may encounter difficulties obtaining financing. Some occupations, like freelance writing, have little to no startup costs: all you need is an internet connection and a place to work. Other businesses, like those manufacturing and selling goods, generally need some startup capital.

If you can’t borrow this money from a friend or family member, then there are some banks that will consider your financing application.  You can expect to pay a premium on the loan if you are approved, but it can be worth it when you’re seeking to establish business credit while rebuilding your own.

Here are some tips that increase your chances of success.

Have a strong business plan

Your business plan is where you explain how you intend to run your new enterprise, what the anticipated operating expenses and revenues are, and any contingencies. When you present a realistic case based on actual figures and sales trends, the loan officer is more likely to consider your application.

While many new entrepreneurs turn to the Small Business Administration for loans, be aware that the SBA will require you to personally guarantee the loan and use personal assets like your home for collateral.

Let time pass

While not all banks will reject applicants with a bankruptcy on their credit history, most of them require that a certain amount of time pass first. The general standard appears to be two years, although financial institutions will vary in their requirements. All of them will want to see evidence of good financial habits in the years since your discharge.

Look into financing alternatives

There are other means of financing besides banks. They include subcontracting for an existing business to lower the amount of operating capital you need or soliciting investors. Crowdfunding has proven to be successful for some business startups, but success is not guaranteed.

Maintain good business records

If you are able to acquire traditional or alternative financing, start your business and be sure to maintain good business records. Business loans can be short-term with the option of renewal, and you want to be able to show the lender that your business is succeeding. At that point, you may be able to qualify for more money and more favorable terms, so good business sense and a focus on success can help you put your Chapter 7 filing behind you more quickly.

Jayson Lutzky is a Bronx, New York bankruptcy attorney. He is admitted to the Southern and Eastern Districts of New York. Mr. Lutzky offers free in-person initial consultations. You can reach his office at 718-329-9500 or you can visit www.MyNewYorkCityLawyer.com.

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