The coronavirus pandemic has severely impacted businesses and entrepreneurs across the globe. Lockdowns and social distancing measures forced many retail shops to stop operating momentarily; some even closing their businesses altogether.
In the U.S. alone, more than 163,000 establishments have closed between March and August due to the pandemic, according to Yelp. What’s worse is that around 60% of these businesses will no longer reopen even after the outbreak subsides.
On top of business closures, some entrepreneurs have already filed for bankruptcy. The majority of them are small business owners. The latest data from the American Bankruptcy Institute (ABI) showed that about 800 small businesses filed for Chapter 11 bankruptcy between mid-February and the end of July 2020 due to the outbreak. On top of this, the trade group projects that the total bankruptcy filings for 2020 alone may increase by 36% from last year. Local restaurants were the most affected, according to ABI.
Going bankrupt is every person’s nightmare, let alone for business owners like you. But if you play your cards right, you can still start a new business even after going bankrupt. Here are some tips on how you can recover from financial mishaps and start anew after filing for bankruptcy.
1. Keep your new business separate from your personal asset
If you filed for bankruptcy due to accumulated business debt as a sole proprietor or a partner in a failed venture, consider using a limited liability company or a corporation in running your new business. This will help you avoid any personal liability as a sole owner or trader in case this new venture goes downhill.
2. Regain your credit score
Your credit score takes a significant hit whenever you file for bankruptcy. This makes it difficult for you to get funds for your new business, especially from traditional funding sources. Fortunately, you can slowly rebuild your credit score by doing little effort. These include paying your bills on time, reducing your outstanding credit balance, and monitoring your credit report.
3. Consider getting funds from financing alternatives
Experts say that entrepreneurs who have filed for bankruptcy are 12 times less likely to get approved for a business loan, especially from traditional funding institutions like banks.
You may consider getting a Small Business Administration (SB) loan to fund your new venture. An SBA lender may give you that needed financial boost. However, they may require you to tie the loan with another personal asset for security.
You may also opt to solicit funds from investors you are close with, or work as a temporary subcontractor for an established business to save enough funds.
4. Seek advice from legal and financial professionals
Starting a new business after filing for bankruptcy may entail financial and legal hurdles along the way. Having legal and financial advisers by your side can help you develop a more strategic and successful business plan, as well as avoid repeating mistakes and any unwanted mishaps in the future.
Most small business owners encountered major financial losses due to the current health crisis. However, going bankrupt doesn’t mean that you cannot start anew. All it takes is a little courage and lots of strategic preparation.