Advantages and Disadvantages of Co-Signed Business Loans
Cosigners are also referred to as guarantors. Applying for a business loan with a co-signer could benefit you in many ways. It can help your business qualify for loans from more lenders. If you apply this way, you can potentially qualify for bigger loan amounts, and possibly get lower fees and interest rates. Many small business loan funding providers look at your co-signer’s net worth, credit score, and debt-to-income ratio while considering your loan application. That means you cannot take just anybody with you to co-sign on your loan document—he or she needs to have the ability to pay off your loan in the event that you default.
When you default on the loan, it can hurt your guarantor’s credit. Another disadvantage to applying for a loan with a guarantor is that if the lender puts more emphasis on the owner’s credit than that of the non-owner, then it will not be of much help except if your co-signer can offer some collateral. Even then, you may not want to—your co-signer will be putting his or her assets at risk in favor of little reward. That you have to find collateral, in addition to having a co-signer to guarantee your loan, is not necessarily a good thing.