People who do not have a good credit score may find it difficult to get a business loan approved. While there are various ways to improve it, some may opt to take a different route and have a co-signer sign their loan. Will getting a co-signer increase the chance of getting a business loan approved, though? The answer is: it depends.
When to Get a Business Loan Co-Signer
Lenders take a huge risk when they approve a customer’s business loan. Ideally, the business will do well enough to pay back the loan. There’s no guarantee, however, that a business will prosper. Thus, lenders scrutinize a borrower’s credit score before approving any business loan.
Business owners who do not have a decent credit score can consider getting a co-signer to improve the creditworthiness of their application. The co-signer must be someone who has a higher income or a better credit score than the borrower. Additionally, he or she must accept the responsibility of paying back the loan in case the borrower cannot make the payments.
Who Can Co-Sign a Business Loan?
Lenders typically allow borrowers to co-sign a loan if the co-signer is closely affiliated with the business, such as the manager or primary investor. Alternatively, a blood relative of the primary business owner can also co-sign a loan. Business owners who find a co-signer that fits the bill can positively impact the outcome of the loan as well as the approved interest rate.
What Co-Signers should Take Note Of
Being a guarantor for a loan is a big responsibility. Thus, borrowers should look for someone willing to accept responsibility for the loan. If the borrower defaults on the loan, the credit rating of the co-signer drops. Furthermore, collection agencies and lenders tend to pursue co-signers first as they may be better off financially than the borrower.
People who do not have a great credit history may turn to a business loan co-signer to help them get approved and qualify for better terms. Co-signers, however, must be ready to put their assets and credit rating on the line.