It’s no rarity that entrepreneurs’ business goes bankrupt due to various issues but it doesn’t have to mean that a comeback isn’t a realistic possibility after that. Of course, it isn’t easy but this time it is possible to learn from one’s own mistakes and make sure to avoid the same traps in the next business and help it thrive. Another thing is that it will be difficult the next time to get credit for the next endeavor but that’s why the following tips will help you with starting a new firm that makes a profit.
1. Draw a clear line between you and your business
If you filed for bankruptcy as a single proprietor or because you ended up in debt as a partner, your first step should be starting an LLP (Limited Liability Corporation) strategy. This strategy will enable you to divide your responsibilities, meaning you will be responsible only for your own issues and not your partner’s, too. It’s important to note here that you need to avoid signing any papers that hold you accountable for any potential company’s debts.
2. Be well-prepared for financial issues
Your second attempt is the time for you to show that you are being cautious and deserve credibility, especially to loan providers and other money-lending organizations in case you have a big project in mind. There is no way of skipping this step, so it’s better you set strong business terms before you go and try to get a credit loan. In order to increase your chance of getting the investment, here’s what you can do:
– prepare a thorough business plan
– consider starting your new business with a reliable partner who has strong credibility
– find investors for your new business project
– connect with small-scale community organizations that can finance you
– search for business incentives in local communities in a form of grants or funding
– set an insurance policy for your business (or project)
3. Forget about providing services on credit
As you have to finance your new business startup, you mustn’t even consider providing your services to customers with extended payments. You need to request upfront payments so that you get rid of your debt as quickly as possible.
4. Paying business taxes
You have a personal responsibility to pay business taxes as a business owner. You need to avoid getting in trouble due to a large bill, so make sure your business taxes are paid on time. What’s even more important, you need to identify and pay “trust fund” taxes to the property taxing authority. Otherwise, you could be held personally accountable for the unpaid taxes.
To be clear about the term “trust fund taxes”, those are the taxes that your business collects from others, including sales taxes and payroll withholding, meaning your business has to collect and transmit the payments, but it isn’t a direct tax paying.
Your family and friends are an option here, too. However, if you bearing in mind the risks and the possibility of your business failing again, it will be a safer option to look for angel investors. They are ready to invest their own capital, which can go even up to $500,000. Another option is to find venture capitalists. Their advantage is the fact they are ready to give even up to a few million, but the drawback is that you will have less flexibility and possibly in need of a better credit.
6. Raise your credit score
Your credit report will show a bankruptcy filing, so you need to be prepared to the fact that the interest rate you’ll be offered could be quite unfavorable. Filing for bankruptcy is a tough situation to deal with, as it makes it hard for you to get a credit, but also blocks you from demonstrating a positive credit behavior before you actually get a loan.
This is why the only way is to raise your credit score. A decent credit score is expected to fail by some 100 points after filing bankruptcy so it’s smart to look for a creditor offering a loan for people with unfavorable credit score. Just don’t rush – you need to understand the terms of the post-bankruptcy loan.
7. Consider different types of loans and lenders
Be prepared for the fact that you will probably have to get a certain type of a loan, which doesn’t have to be a bad thing if you are careful with your choice.
You can try to get a loan from a credit union, as they frequently offer better interest rates than banks. However, you would have to join the credit union first and be aware of different terms and requirements of your membership to a specific union, as their terms and criteria vary.
Some entrepreneurs find it easier to apply for a loan online, as some businesses like EFT Capital offer, but not before they are enabled to get financial advice on whether they are better off with a personal or a business loan.
8. Get a secured credit card
After the bankruptcy, it’s difficult to get a low-cost credit card, so the first step here should be applying for a secured credit card (sometimes called a “bad-credit credit card”) that allows you to deposit a certain amount of cash that you can use as your credit line.
The application process is the same as with a regular credit card – you need to give your personal and financial details, after which the credit card issuer determines how big your credit worthiness is.
It is a fact that businesses often face bankruptcy, so if you could have a chat with many successful business owners today, you would find out that a lot of them had at least one business failure throughout their lives. The secret of their success was that they really learned a lot from their mistake and that they have approached their next business with more caution and with a clear and well-prepared plan.