Definition:
A co-signer for a business loan is someone who guarantees the loan will be paid if the borrower defaults on the loan. A lender usually requires a co-signer when it needs more information or more security to be assured that the loan will be paid off. Banks may require a co-signer on start-up loans, because the new business owner has no business credit history for the bank to rely on. Here are some points worth mentioning about co-signers on business loans:
- The co-signer doesn't just sign on the loan; he or she is making a promise to repay the loan if the borrower defaults.
- The co-signer usually is required to provide collateral, in the form of property or other assets, which the bank can sell to recover its money in the event of a default.
- The co-signer is required to provide a personal financial statement, and the co-signer's credit rating is checked and considered in the loan acceptance.
- The co-signer is required to pay late charges, fines, and penalties if the original borrower fails to do so.
A small business owner looking for a start-up loan should search for possible co-signers and be prepared to present co-signers if asked by the lender.
Also Known As: A co-signer is also known as a guarantor for a loan. It might be said that the Small Business Administration loan guarantees serve the purpose of "co-signer" on small business loans.
