If you have ever experienced a foreclosure, you probably know how detrimental it can be to your relationship with creditors. A foreclosure remains on your credit report for as long as 10 years, and it tells creditors that you were previously unable to meet your mortgage obligations contracted with another lender.
Qualifying for a business loan after a foreclosure is not easy. If you were very recently foreclosed upon, lenders will consider you as a very high risk for defaulting on a business loan. In a lender’s eyes, if you failed to pay a previous creditor, you’ll treat a business creditor no different. Few lenders will be willing to take a risk on a business owner with a recent foreclosure, and if they do, the loan may come with very unfavorable terms, such as high or variable interest rates.
Ways You May Get a Business Loan despite Foreclosure
If you are part owner of a business and the foreclosure occurred in your personal finances, the business co-owner may be able to apply and get approved for a business loan on his or her own, so long as he or she has a good credit history and your business is in good financial condition. If you’re the sole owner, but the foreclosure is several years old, some lenders may consider offering you a loan if you can prove that you are now on solid financial footing.
To improve your chances of getting a business loan after foreclosure, apply for your loan with a fully prepared outline of the state of your current finances and how you plan to repay your new business loan. Be upfront about a previous foreclosure, and explain why the circumstances are different now and what you learned from the experience.
Offer personal collateral for the loan you are applying for, and, if possible, invest as much of your own personal funds into your business as you can to show lenders that you are serious about making your business succeed.