Bankruptcy Can Sqaush Your Small Business Dream

A Business Week reader wants to know if she will be able to get a small business loan if she files for bankruptcy. Maybe, but it will be hard. Karen E. Klien, Business Week columnist, answers that, if possible, it may be smarter to get the loan before filing for bankruptcy.

If you do get the SBA loan and then find you eventually have to declare personal bankruptcy after all, you will not automatically be declared in default on the business loan.

Considering the large number of small businesses that fail, lenders are already wary of lending to business startups. Adding a past bankruptcy to the risk calculation will make it much harder to get approved for a loan.

Even though a bankruptcy will fall off your credit report after 10 years, most loan applications ask if you've ever filed bankruptcy before. If you fail to mention your previous bankruptcy and the lender finds out, you could be prosecuted for fraud.

Since bankruptcy is so detrimental to your credit, it's a good idea to seek other alternatives before filing. How to Avoid Bankrtupcy