The law does not state anything that prohibits an individual from starting a new business after bankruptcy. As a matter of fact, you may be able to take home with you some new lessons and apply them in your new business to make sure that you keep it out of any financial trouble.
Evidently, starting a new business too soon after your last financial down fall, may result in some difficulties especially with regards to obtaining credit. Here are some tips you can consider in case you are planning to start a new business.
Keeping your Business Separate from Yourself
If you filed for bankruptcy due to a business debt that you incurred in a failed partnership or sole proprietorship, it is best that you consider using a different name or form for your new business. Remember that corporations and limited liability companies are legally separate from those who own it. The debt that the business incurs is not always a personal responsibility of a member or a shareholder. However, if you sign any personal guarantee, you as an individual are liable to the business debt as it is your own.
Acquiring new Tax or Employer Identification Numbers
If the prior sole proprietorship or corporation or limited liability company filed for a Chapter 7 or any other Bankruptcy law, you are not permitted to start a new business under the same tax or employer identification number. Also, remember that corporations and limited liability companies do not receive any discharges under Chapter 7. This means that if you re-open them, old creditors have the right to take all necessary action to collect debts that were not paid in full.
Preparing yourself for Challenges of Obtaining Financing
When starting a new business, if you are the sole owner, banks and other creditors are bound to ask you about your personal credit history. You may want to consider taking the following steps to improve your chances of getting financed-
- Make sure you come with a comprehensive business plan.
- Try to open the business with a partner who comes with a good credit rating
- Find investors who are willing to partially fund the business
- Approach small community banks for financing
- Approach local communities who provide incentives, grants and finance to businesses.
Using Caution in case of Small Business Administration Loans
If you are resorting to small business administration it is important that you exercise caution. Most often, small business administration requires personal guarantees for loans. In addition to this, they require that you use personal assets, i.e. your home to secure the business debt.
Considering Other Alternatives to Financing
You may also want to consider other alternatives to financing. Whether these options suit you depend on the nature of the business you are starting.
- Consider soliciting investors who can fund your business
- Consider venturing into a personal service business that requires little or no operating capital
- Consider working as a subcontractor for a business that is already established. This helps in significant reduction of your operating capital.
Paying all your Business Taxes
It is best for you to avoid any personal responsibility for your business taxes. It is important to make sure that your business pays its tax debts in a timely manner. It is also important that your business is able to clearly identify and pay to relevant property taxing authorities any trust fund taxes that are applicable. Not doing so can result in personal liabilities.
Finally, it is important for you to be careful when extending payment terms to your customers. Find ways to maintain good business records and you will be able to successfully venture on the path of entrepreneurship again.