If you have a low credit score or limited credit history, qualifying for a business loan can be challenging. A cosigner may help bridge the gap. By sharing responsibility for repayment, a cosigner with stronger credit or finances can improve your approval odds and may help you access better rates or higher loan amounts.
Here’s how cosigners work, when they make sense and what to consider before adding one to your business loan application.
Yes, as long as your lender allows it. Some lenders permit cosigners, but it’s not very common. A business loan cosigner is an individual who agrees to repay your loan if you can’t. They’re equally responsible for the debt, even though they don’t own any part of your business. Some lenders refer to this role as a guarantor.
Most lenders don’t openly advertise whether they accept cosigners. You usually discover it during underwriting, especially if your application falls short in areas like credit history, revenue or available collateral. In those situations, a lender may suggest adding a cosigner to strengthen your application or help you qualify for better terms.
Most business loans require a personal guarantee
A personal guarantee isn’t the same as using a cosigner. With a personal guarantee, you — the business owner — agree to repay the loan if the business can’t. Most banks and online lenders require this for almost all small business loans.
A cosigner, on the other hand, is a separate person who takes on that responsibility with you and does not own part of your business.
When to apply with a cosigner
A cosigner can strengthen your application when your business doesn’t meet a lender’s standard requirements on its own. It may be a good idea to apply with a cosigner if you:
Can’t meet time-in-business requirements, especially if your business is new.
Fall short on annual revenue requirements.
Want to qualify for a larger loan amount than you’d get on your own.
Hope to get better terms, such as a lower interest rate or longer repayment period.
Don’t have enough collateral to secure the loan.
A strong cosigner can improve your chances of approval and help you access more favorable terms by reducing the lender’s level of risk.
How to apply for a business loan with a cosigner
Applying with a cosigner works much like a standard business loan application, with a few extra steps. Here’s how the process typically looks:
Compare lenders. Most lenders don’t publicly state whether they accept cosigners, so you may not know until you apply. Start by comparing business loans based on rates, loan amounts and credit requirements. Marketplaces like Lendio and Fundera are a good place to start because you can check offers from dozens of lenders at once.
Choose a qualified cosigner. If a lender asks for one, look for a cosigner with strong credit, stable income and low existing debt. Lenders often prefer someone with a close relationship to the business, such as a family member, investor or senior employee who could realistically step in if needed.
Submit a joint application. Both you and the cosigner must complete the application. Your cosigner provides the same documentation you do, including proof of income, assets and employment, and must consent to a hard credit check.
Review and sign the loan agreement. If approved, both of you need to review the terms, sign the agreement and return it to the lender before funding is released.
After the loan is funded, the cosigner typically has no active role unless you miss payments. If that happens, the lender may contact the cosigner to take over repayment.
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Lenders look at a cosigner’s overall financial strength to assess how much they reduce the risk of lending. This assessment usually includes your:
Credit score and credit history
Income level and stability
Debt-to-income ratio
Net worth and available assets
Employment or business history
Some lenders may also require the cosigner to pledge collateral on secured loans, but this is less common.
What should my cosigner’s credit score be?
Most business lenders look for a cosigner with good to excellent credit, typically a score of 680 or higher. But if you’re trying to maximize your approval odds or qualify for stronger rates and terms, a cosigner with a score of 740 or above offers the biggest boost.
Higher credit scores signal lower risk to lenders, which can help your application stand out, especially if your business is newer or has fluctuating revenue.
How cosigners affect your business loan application
Lenders use different methods to weigh both applicants’ credit and finances. Here are the most common ways they factor a cosigner into your loan application:
Strongest-applicant method. The lender uses the higher credit score and stronger financial profile when evaluating the loan. This approach offers the biggest benefit if your cosigner has excellent credit.
Weighted-average method. The lender blends both applicants’ credit profiles but gives more weight to the business owner. In this case, a cosigner helps — but not as much — unless they have very high income or strong assets.
Equal-average method. The lender considers both applicants’ credit profiles equally. This method can boost your application if your cosigner’s credit is significantly stronger than yours.
The strongest-applicant and equal-average methods tend to offer the most improvement. With the weighted-average method, a cosigner provides a smaller boost unless they have very strong finances.
Pros and cons of business loans with cosigners
Pros
May increase your odds of loan approval
Can help you qualify for a larger loan amount
Possibly find lower interest rates and longer repayment terms
Cons
Puts your cosigner’s credit and finances at risk if you fall behind or default
May lead to loan terms your business can’t comfortably afford
Could still require collateral
Using a cosigner vs. collateral
A cosigner can strengthen your loan application without tying up your assets, but it isn’t always a better option than providing collateral. The right choice depends on your business’s financial profile and what collateral you can offer.
Using a cosigner may be better when you:
Don’t have enough collateral to secure the loan on your own.
Have assets that lose value quickly, like vehicles or equipment.
Want to improve your approval odds or loan terms through someone else’s stronger credit profile.
You want a backup repayment source so lenders are less likely to go after your assets.
Using collateral may be better when you:
Have valuable assets with stable or rising value, such as real estate.
Want to avoid involving friends, family or business contacts in your financing.
Are applying with a lender that uses a weighted-average credit method, where a cosigner might not provide much benefit.
Want to reduce risk to others and keep financial responsibility solely on the business.
Both strategies can improve your chances of approval; the best choice depends on what you can comfortably offer without risking your relationships or your business’s stability.
What’s the difference between a cosigner and a co-applicant?
A cosigner and a co-applicant can both strengthen a loan application, but they work very differently:
Cosigner
No ownership. They don’t own any part of the business and don’t use the loan funds.
Backup payer. They agree to repay the loan only if you can’t.
Credit support. Their strong credit and financial history help when you don’t meet a lender’s requirements for credit, revenue or collateral.
Limited involvement. They aren’t involved in running the business.
Co-applicant (Co-borrower)
Shared responsibility. They apply with you and are equally responsible for repayment.
Shared access. They can use the loan funds and help manage repayment.
Ownership tie. Typically, a business partner, spouse or co-founder who owns part of the business.
Full review. Lenders evaluate both applicants’ credit, income and assets when approving the loan.
Are co-applicants allowed on business loans?
Yes. In fact, co-applicants are much more common than cosigners. Many lenders (including banks, credit unions and online lenders) expect all business owners with a meaningful stake in the company to be part of the application. This is especially true for:
Partnerships
LLCs with multiple members
Corporations with several shareholders
Married couples who co-own a business
Most lenders require anyone with 20% to 25% ownership to either apply as a co-applicant or provide a personal guarantee, which involves the same credit checks and documentation as applying together.
Business loan alternatives if you don’t want a cosigner
If you’d prefer not to add a cosigner, there are still several ways you can fund your business, including:
Equipment loans. If you need money for new equipment, an equipment loan might be the best way to go. With this type of funding, the equipment you purchase serves as collateral, making it easier to qualify even if you have a low credit score.
Invoice factoring. If your business has outstanding invoices, you can sell them to a factoring company for quick cash. Invoice factoring works well for businesses needing immediate funds without relying on credit history.
Merchant cash advances (MCAs). An MCA provides a lump sum in exchange for a portion of your future credit and debit card sales. Approval is based on sales volume and payments are typically deducted daily or weekly.
Other revenue-based financing (RBF). Revenue-based financing providers fund your business based on overall monthly revenue, not credit. You repay through a percentage of total revenue each month until you’ve paid back a predetermined amount.
Business credit cards. Perfect for smaller expenses, a business credit card can provide a revolving line of credit. Some cards are easier to qualify for than business loans, even if you have less-than-perfect credit.
Microloans. Microloans are small loans between $500 and $50,000 designed for new businesses, startups and borrowers with limited credit history. They’re typically offered by nonprofits, the SBA and community-funded platforms like Kiva.
Borrowing from friends and family. While it can be tricky, borrowing from family and friends can be a quick way to get funding for your business. Just make sure to set clear terms to avoid misunderstandings.
Grants. Business grants are essentially free money you don’t have to pay back. Look for options from government agencies, nonprofits or private organizations that support businesses in your industry or community.
These alternatives can help you secure the capital you need without involving a cosigner. Each option has its pros and cons, so consider what fits best with your business’s cash flow and goals.
Bottom line
A cosigner can strengthen your business loan application and help you qualify for higher amounts or better terms, especially if your own credit or business finances fall short. But involving a cosigner also raises the stakes, since late payments or default can damage their credit and strain your relationship.
Make sure your business can comfortably manage the repayment before asking someone else to share the responsibility of a loan.
Frequently asked questions
No. The SBA doesn't allow cosigners on its business loans. Instead, it requires personal guarantees from anyone who owns 20% or more of the business. A personal guarantee makes each eligible owner personally responsible for repayment if the business can't pay.
No. Lenders require cosigners to be individuals, not business entities. A cosigner must be someone who can take on personal legal and financial responsibility if the borrower defaults, which an LLC cannot do.
If you default, the lender can require your cosigner to repay the outstanding balance. Both of you may see negative impacts on your credit reports, which can affect your ability to borrow in the future. A default can also strain your personal relationship with the cosigner.
Cosigners take on full responsibility for the loan if the primary borrower misses payments or defaults. This arrangement can lead to financial strain, damage to the cosigner's credit score and difficulty qualifying for future credit. If the loan is secured, any collateral tied to the loan — including the cosigner's assets — may be at risk.
No. Cosigners typically can't be removed from a business loan. While some personal loans offer cosigner release programs, this option is rare for business financing. To remove a cosigner, you'd generally need to pay off the loan or refinance it in your name only.
Christi Gorbett is a freelance writer with more than eight years of experience and a master's degree in English. She’s created a wide range of content for banks, financial product comparison sites, and marketing companies on topics like small business loans, credit cards, mortgages, retirement planning, lender reviews, and more.
As a former teacher, Christi excels at making complex financial topics accessible and easy to understand. Her interest in finance grew when she returned to the U.S. after living in South Korea for nearly a decade.
This shift was driven by several personal financial challenges: rebuilding her financial base after the move home, starting her own business, and catching up on retirement savings. These experiences deepened Christi’s practical understanding of finance and intensified her interest in the field.
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A review of QuickBooks Capital, which offers business loans up to $200,000 to companies that use the QuickBooks accounting software.
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