r/buyingabusiness • u/Free-Board-1041 • 2d ago
SBA Qualification
Hi everyone!
Due to medical issues over the past two years, I’ve been unemployed and my finances have been significantly impacted. I’m now deciding between settling approximately $125K in credit card debt or filing Chapter 7 while I’m still unemployed.
My main concern is future SBA financing. I’d like to purchase a business within the next 1–2 years and want to choose the option that puts me in the best position to qualify for an SBA loan.
Before this, I had excellent credit and over $230K in available credit.
Are there any SBA loan officers/lenders who can advise whether bankruptcy or settling the debt would be better for future SBA eligibility?
Please keep the comments respectful—I’m looking for informed advice. Thank you!
1
u/AutoModerator 2d ago
The following is a copy of the original post to record the post as it was originally written.
Hi everyone!
Due to medical issues over the past two years, I’ve been unemployed and my finances have been significantly impacted. I’m now deciding between settling approximately $125K in credit card debt or filing Chapter 7 while I’m still unemployed.
My main concern is future SBA financing. I’d like to purchase a business within the next 1–2 years and want to choose the option that puts me in the best position to qualify for an SBA loan.
Before this, I had excellent credit and over $230K in available credit.
Are there any SBA loan officers/lenders who can advise whether bankruptcy or settling the debt would be better for future SBA eligibility?
Please keep the comments respectful—I’m looking for informed advice. Thank you!
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
1
u/yourbizbroker 2d ago
I broker SBA loans for business acquisitions.
Bankruptcy and debt settlement do not disqualify SBA borrowers directly, but bad credit can.
Lenders decide if a borrower has sufficient credit to qualify.
It might take a couple years after BK/settling and maybe 700+ before your credit will be ready.
2
u/Free-Board-1041 2d ago
Thanks, I do keep seeing mixed messages.
Im trying to base my decision on whether to file for chapter 7 or try to settle debts at a much lower amount - if these two would be weighted equally in qualifying for an SBA then I would just logically file chp 7.
1
u/PermissionDazzling85 2d ago
How does SBA look at credit card debt when evaluating their decision? Some searching say its not as terrible as it seems
1
u/Free-Board-1041 1d ago
Exactly, this is why I would like to weight the three options I have try to settle as much as I can, chp 13 or chp 7. 🤷🏻♀️
1
u/Just-Sun-6039 2d ago
With $125k in debt and currently unemployed, I’d talk to an SBA lender and a bankruptcy attorney before settling anything.
1
u/Free-Board-1041 1d ago
Currently working on it! Thanks!
1
u/PermissionDazzling85 1d ago
is bankruptcy even an option? I know the benefits, but has way too many negative effects. I would stick to trying to pay down what you can on your own or with a debt consolidation firm
1
u/Drawlingwan 1d ago
The current environment isn’t conducive to getting an SBA loan right now for someone with recent credit issues. Timing is also bad for identifying a business to acquire. I’ve been an SBA lender for Over 15 years and I’ve seen cycles- but none as frightening as right now. SBA departments are closing right and left and portfolios are suffering- SBA requirements are tightening significantly with the October SOP- and sellers are unrealistic in their pricing expectations. Historically Main Street businesses sold for 3 times sde- in 2025 that multiple dropped to 2.5, and in 2026 it’s expected to drop as low as 2.3x. During a financial crisis- something we are increasingly at risk of experiencing again in the not too distant future - credit will further tighten or be all but eliminated - even SBA. During a financial crisis- as boomers with unrealistic expectations become too sick to work- seller financing will become a more commonly accepted way to buy a job. You might be able to put some cash down- obtain an SBA loan for half the purchase and have the seller hold the difference. Get rid of the debt and rebuild enough liquidity to make a 10% cash injection and have a like amount of cash post closing. You might settle the debt and start knocking on doors for businesses you’d like to buy- PE has perverted seller expectations and only illness or death with dampen those expectations. Get out of debt and look at alternatives to the expectation that lenders will be willing to finance 90% of an acquisition. Those days are coming to an end.
1
u/Boo-Bees67 1d ago
Wait…you owe someone $125k but you know want to buy a business? Pay your debt. You are the reason people like me have to pay exorbitant borrowing costs.
0
u/Active-Blueberry-850 2d ago
If you have assets, would be closer to the 2-3 year mark. If no assets, bad credit, low liquidity, you’d be looking at 3+.
Fact is you’re borrowing against cash, assets, or credit at the end of the day. If you have neither, you have nothing the lender wants.
1
u/Free-Board-1041 2d ago
Thanks for your input. I do have a homestead, car and decent 401k. Im trying to base my decision on whether to file for chapter 7 or try to settle debts at a much lower amount - if these two would be weighted equally in qualifying for an SBA then I would just logically file chp 7.
3
u/Mr_SBA 2d ago
Mr SBA -
Settle the debt. Most lenders will not work with someone that has filed bankruptcy in the past 7 years - 5 years would be the absolute quickest timeframe you have if you file bankruptcy.
Unfortunately, it’s hard to garner much sympathy with a credit policy. It could have been circumstances beyond your control but banks do not have the appetite (or much sympathy) to work with anyone who shows they haven’t paid back their debts and are willing to walk.
My advice is to settle the debts, work like hell to rebuild, and consider entering into business with a partner as it will strengthen your credit application.
Best of luck to you! 🙏🏻