7 Steps to Starting a Business After Bankruptcy
Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
Trying to get a new business off the group after filing a Chapter 7 bankruptcy isn’t easy.
After all, you need money to start your business. If you’re hoping to get a bank loan, a previous bankruptcy can make this difficult. After two or three years, your Chapter 7 bankruptcy will start losing its impact on your credit. And it may be possible to get a bank loan sooner than two years if you’re willing to pay a higher interest rate.
Step #1: Look for businesses you can start with very little money. If you don’t need a loan, then your Chapter 7 Bankruptcy won’t have any impact of your business. And you may be surprised at how many home-based businesses you can start with almost no money. Search on the internet for businesses that require no (or very little) money. Magazines write article after article about home-based businesses because so many people want to earn money without a lot of overhead.
Step #2: Borrow money from your family or friends. If you have recently filed a Chapter 7 bankruptcy, personal loans may be the only way to get start-up funds. Make sure you put your loan agreement in writing and state clearly the details of how and when you will repay the money.
Step #3: Write an in-depth business plan. Banks and other lenders need details about your new enterprise. They want to know about the business itself, the analysis of the industry, the amount of your projected sales and profits, and more. The Service Corp of Retired Executives (SCORE) has many resources for people who want to start new businesses. They can even provide a mentor who can help you start a business after a Chapter 7 bankruptcy.
Step #4: Ask a friend or relative to co-sign a loan for you. When you enlist the help of a co-signer, the lender is taking less risk because the co-signer will repay the loan in case you don’t. This means you’ll likely get a lower interest rate.
Step #5: Get the required permits to do business. Your bankruptcy has no effect on getting permits. You’ll need an Employer Identification Number (EIN) from IRS. Also, local government offices may require a business license and other permits depending on the type of business you’re starting.
Step #6: Buy the start-up inventory of products you’ll sell. A Chapter 7 bankruptcy on your record may keep you from getting favorable payment terms from vendors. So at the outset, you may need to pay cash for your stock. As vendors see that you pay your bills on time, they may extend credit to you after a few months.
Step #7: Promote your business in inexpensive ways. You can use fliers, bulletin boards, and various online places to advertise your business at little or no cost. And make sure any advertising you do has a reasonable chance of success.