Business loans with a cosigner

Before you ask anyone you trust to be a cosigner, you should consider these important points:

• Will a cosigner improve my chances of approval?

A cosigner can strengthen your application in certain situations. Typically, lenders like to secure as much collateral as they can, so adding extra assets and revenues to the deal may tip the balance in your favour. However, a cosigner may not help if your application has been declined because of the type of business you operate, if you’re a startup in a risky industry, or for other reasons that have nothing to do with your personal credit or lack of collateral.

• Can I repay the loan without a cosigner?

The cosigner is a backstop for the loan, not a repayment partner. You should base your financial calculations – can you afford the repayments – on a scenario where the cosigner is only added to the deal as insurance for the lender. If you don’t think you can make the loan payments without drawing on the cosigner’s funds, you may be better off waiting until you have higher revenues, better credit or sufficient assets to carry the business loan on your own.

• Have I considered other funding options?

Adding a cosigner to your business loan can be risky, not just for their credit and assets but for your relationship with that person. Therefore, you should only bring in a cosigner as a last resort. Additionally, have you investigated business loans that may not need a personal guarantee and that use the assets you finance as collateral for a loan? Invoice financing, merchant cash advances, equipment loans and revenue financing may give you the funds you need without any need for a cosigner.