How to get a business loan with a cosigner | finder.com
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How to get a business loan with a cosigner

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Can’t qualify for a loan on your own? Here’s when it might be a good idea to borrow with a guarantor for your business.

Your business is doing well, but your credit score isn’t high enough to qualify for the loan it needs. Unfortunately, most business lenders care more about your personal credit history than your business’s. That’s where a cosigner can help. Applying with a creditworthy individual can help your business qualify for a loan and potentially even get better rates.
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    When is it best to apply with a cosigner?

    Getting a cosigner can help when your personal credit is poor and could hurt your business loan application. It’s also a good idea when you don’t have the personal assets to back your loan. However, it won’t necessarily help if your business can’t meet revenue or time-in-business requirements.

    How can applying with a cosigner help? First, it can help increase your chances of getting approved if your credit score is too low to meet most minimum requirements — typically below 650. It can also help your business be approved for higher amounts when you just eek by the credit score minimum.

    Bringing on a cosigner can help your business avoid providing collateral or a personal guarantee. A cosigner lowers the risk of default on the loan, which is typically the purpose of a lender requiring collateral. Your cosigner can also help you meet your lender’s collateral or personal guarantee requirements by backing your business’s loan with their assets.

    How does applying with cosigner work on a business loan?

    Applying with a cosigner works a little differently with business loans than with personal loans. That’s because it’s typically up to the lender to decide whether or not your application could benefit from a cosigner — not the borrower.

    In fact, most lenders don’t even advertise if they accept cosigners. In many cases, a lender might suggest bringing on a cosigner after reviewing factors like a business’s financials, credit ratings and assets of all business owners and any collateral.

    What's a cosigner?

    A business loan cosigner is someone who signs a document guaranteeing they’ll repay your loan if you can’t. That means they’re as legally responsible for paying off the loan as your business. Lenders also refer to cosigners as guarantors.

    When it comes to business loans, lenders typically only allow relatives or close business affiliates — like an investor or senior employee — to cosign a loan. The ideal cosigner also has excellent credit, a low debt-to-income ratio and a steady income. They should be able to comfortably afford covering your business’s loan repayments.

    Compare business loans you can apply for today

    Rates last updated November 13th, 2018
    Unfortunately, none of the business loan providers currently offer loans for these criteria.
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    LoanBuilder, A PayPal Service Business Loans
    Customizable loans with no origination fee for business owners in a hurry.
    $5,000
    $500,000
    Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
    Credibly Business Loans
    Funding to cover business expenses with daily or weekly repayments.
    $5,000
    $250,000
    At least 6 months in business, average $10,000 in monthly deposits.
    Lendio Business Loan Marketplace
    Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
    $500
    $5,000,000
    Must operate a business in the US or Canada, have a business bank account and have a personal credit score of 560+.
    LendingClub Business Loans
    With loan terms that vary from 1 to 5 years, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
    $5,000
    $300,000
    12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better
    OnDeck Small Business Loans
    A leading online business lender offering flexible financing at competitive fixed rates.
    $5,000
    $500,000
    Must have been in business for at least one year with annual revenue of $100K+. Must have a personal credit score of 500+.
    Lending Express Business Loan Marketplace
    $5,000
    $500,000
    At least 3 months in business and $10,000+ in monthly revenue. Your business might also qualify if it's been in business at least 6 months with $3,000+ in monthly revenue.
    Fora Financial Business Loans
    No minimum credit score requirement and early repayment discounts for qualifying borrowers.
    $5,000
    $500,000
    Business age 6+ months. Monthly revenue $12,000+. No open bankruptcies.
    LendingTree Business Loans
    Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
    Varies by lender and type of financing
    Varies by lender and type of financing
    Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.

    Compare up to 4 providers

    How do lenders evaluate cosigners?

    In general, lenders consider your cosigner’s credit score, net worth and debt-to-income ratio when considering your application. Some might also ask your cosigner to put assets up for collateral — typically enough to back all or part of your loan.

    The impact your cosigner has on your application depends on the method your lender chooses. There are generally three different ways lenders treats cosigners on your application:

    1. Best credit method. The lender only considers the best credit profile and completely disregards the lower credit score.
    2. Weighted average method. The lender puts more weight on the business owner’s credit than the nonowner’s credit.
    3. Nonweighted average method. The lender considers your and your cosigner’s credit equally.

    The best credit and nonweighted average methods could be the most beneficial to your business — especially if you don’t have strong personal credit. But if your lender uses the weighted average method, applying with a cosigner won’t be of much help unless they can provide some collateral. And even then, you might not want to — they’ll be putting their assets at risk for little reward.

    Pros and cons of business loans with cosigners

    Pros

    • Can help you qualify with more lenders.
    • Potentially qualify for larger amounts.
    • Possibly lower interest rates and fees.

    Cons

    • Can hurt your cosigner’s credit if you default.
    • Might get approved for a loan with repayments your business can’t handle.
    • Could still require collateral.

    Using a cosigner vs. collateral

    Sometimes getting a loan with a guarantor isn’t always a better alternative to securing your business loan with collateral. For one, putting up collateral can save your personal relationships — there’s no risk of damaging your brother’s credit score or getting his car repossessed. And if you’re borrowing with a lender that uses the weighted average method, putting up collateral could have more of an impact on your application.

    But sometimes your assets aren’t as valuable as you thought — vehicles can lose value over time and the real estate market isn’t always predictable. If you don’t have the means to back your loans on your own, using a guarantor could be a good choice. In this case, even if your lender uses the weighted average method, your cosigner’s collateral could help your business qualify for the loan it needs.

    Bottom line

    Bringing on a cosigner can sometimes give your business loan application the boost it needs to get approved for high amounts and low rates. A guarantor can also help back your business loan by putting their personal assets up for collateral. However, there’s the risk of hurting your cosigner’s credit score — and possibly your personal relationship. And your business could end up biting off more than it can chew, and risk default.

    Want to learn more about how business loans work? Check out our business loans guide, where you can compare lenders and narrow your search for financing that fits your business’s needs.

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    Anna Serio

    Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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