Guide · Difficult situations
Can you get funding after defaulting on a previous advance?
By Alex Makowski Published
Harder, and it depends almost entirely on whether the previous obligation was settled or is still outstanding. A settled default with a year of clean trading behind it is workable. An unresolved balance with an active UCC filing generally is not, because there is nothing for a new funder to secure and an obvious competing claim.
In this guide
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01
What underwriting sees
The UCC filing, if the previous funder registered one and never terminated it. It is public and it is the first thing found.
Any judgment, which is also public record and weighs considerably more than a private settlement.
Your bank statements, which show whether debits stopped abruptly — the signature of a default — and what has happened since.
02
What makes it workable again
Settle it, and get that in writing. A settlement letter plus a UCC-3 termination is the single most valuable document you can hold here.
Time and clean trading. Six to twelve months of consistent deposits with no negative days does more than any explanation.
A short, factual account of what happened. Underwriters have read thousands of these; a plain explanation of a specific cause and what changed is credible, and vagueness is not.
A smaller ask. A modest facility repaid cleanly rebuilds the record; a large one after a default is not going to be written.
03
What not to do
Do not conceal it. It is on the public record and in your statements, and being found out ends the application on credibility rather than on the underlying facts.
Do not take a high-cost facility to clear the old one without doing the arithmetic. Refinancing a default at worse terms is how a difficult position becomes an impossible one.
Do not open a new bank account to present a clean history. Funders ask for all accounts, and gaps in the record are conspicuous.
Written by
Alex Makowski, Owner
Alex Makowski owns and runs Business Loans for America and has been placing funding for U.S. small businesses since 2021. Businesses he has worked with have secured $50M+ in financing across 1,200+ placements. He writes and reviews every guide on this site.
FAQ
Related questions.
- How long does a default follow me?
- A UCC filing typically runs five years unless terminated; judgments are public for longer. Practically, twelve months of clean trading after settlement is what changes the answer.
- Will anyone fund me while the balance is outstanding?
- Very few, and those that do will price it accordingly. Settling first is almost always the cheaper route.
- Does a settlement hurt less than a judgment?
- Considerably. A private settlement with a termination filed is far better than a judgment on the public record.
Guides
More on difficult situations
Sole proprietors
Yes — but the business bank account is close to non-negotiable.
UCC filings
A public notice that a funder has a claim on your assets.
Personal guarantees
Nearly always — and it is the term that outlives the business.
With a tax lien
Yes, if there is a payment plan and the lien is disclosed.
Sources
- Consumer Financial Protection BureauFederal consumer-finance regulator. Publishes guidance on credit terms and disclosure.
- Federal Trade CommissionEnforces against deceptive practices in small-business lending and marketing.
- FTC — Report FraudWhere to report advance-fee and business-funding scams.
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