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My client was declared bankrupt 10 years ago. Now back on his feet, he wants to buy business premises. Will a commercial lender grant him a loan?

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  • 10/08/2001
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The answer is 'yes', if the applicant is willing to disclose why they were made bankrupt and what ef...

The answer is ‘yes’, if the applicant is willing to disclose why they were made bankrupt and what efforts they made to clear their liabilities. No lender will be enthusiastic about such a case and no two will have the same policy, so expect a varied response.

First, approach those lenders with whom you have a strong relationship, as they may be prepared to do you a favour. Any lender will want to be satisfied with the standard credit criteria. Ask about the applicant’s track record, financial stability, assets, liabilities, the viability of the business and its prospects.

Prior to the last recession, few lenders would grant a loan to a discharged bankrupt. It was assumed that the bankrupt had brought about their own downfall.

But attitudes have changed. Such was the depth of the recession that many became victims through no fault of their own. Otherwise successful businesses saw their orders and cashflow dry up as customers and suppliers went bust and some banks were a little hasty in pulling the plug.

Lenders who are willing to forget the past and consider an application will want to know the full circumstances of the bankruptcy, for example, copies of the initial and closing reports by the trustee in bankruptcy.

An applicant who tries to dismiss all this as irrelevant is likely to be dismissed just as quickly in case they are hiding something. If they are up front with the history and can show they did their best to honour their debts, they will get a hearing.

Lenders may ask for authority to take up credit searches on the applicant and business before they do anything. They will want to see that there have been no recent problems with payment.

Lenders want to do business. But if they ask a lot of questions, be grateful and patient ‘ at least they are trying to help.

As a final caution, even if an applicant does not disclose their credit history it will almost certainly be revealed by a bankruptcy search at the eleventh hour. No amount of excuses will persuade the lender not to cut and run. Apart from the fact that the applicant has probably committed an act of fraud by seeking to obtain money under false pretenses, they will lose a lot in fees and you will lose your credibility.

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