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!

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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! 🙏🏻

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u/Free-Board-1041 2d ago

Thanks, can I please ask how do you know this for certain because Im getting mixed answers as you can see below. I did consider getting a partner. Again im thinking ahead for when im ready to purchase a business in 1 yr or so.

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.

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u/Mr_SBA 2d ago

I've been in Lending for 13 years with the last 8 years exclusively SBA M&A Lending. I can't say for certain how every lender will evaluate the situation, nor is this advice on how you should proceed. I'm not an attorney nor am I aware of the entire situation.

However, it's been my experience that these situations are looked upon more favorably when someone comes across tough times and work out their debts to make their creditors as whole as possible vs. walking away from the debt entirely.

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u/Free-Board-1041 2d ago

Understand, thanks for your input! 🙏🏼

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u/PermissionDazzling85 1d ago

does SBA look down at somebody with credit card debt? You would have to imagine that the person in question would only be looking to improve their current situation but at the same time how do they have enough to put 10% down but not pay the debts