How Co-Signing for a Small Business Loan Works

How Co-Signing for a Small Business Loan Works

It can be said the Small Business Administration acts similarly to a co-signer on SBA guaranteed loans.

Why a Guarantor Is Required for a Loan

Usually, a lender needs a co-signer if they require more security or information, in order to be assured the business loan will be repaid fully. A bank may need a guarantor on startup loans as the new business’s owner does not have credit history for it to lean on.

How Does the Process Work?

  • The loan applicant may be informed by the lending institution that a guarantor is required.
  • The guarantor usually has to have a credit rating that is excellent, or if it is a small business loan, he or she should have a business or personal assets which can be pledged if the borrower defaults.
  • The guarantor has to go through the loan application process together with the applicant, producing documents which verify the value of their assets, or their credit rating.
  • The guarantor signs loan documents, asserting they will honor the loan terms.
  • The co-signer gets communications from the lender and is informed in case the applicant fails to make timely payments.