Co-Signing Process for a Business Loan

Sponsored by What's this?
Two people have a discussion.

10'000 Hours / Getty Images

A co-signer for a business loan is someone who guarantees the loan will be paid if the borrower defaults on the loan. 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. A co-signer is also known as a guarantor for a loan.

Key Takeaways

  • Businesses typically need a co-signer because they don't have the credit or assets the lender is looking for.
  • When looking for a co-signer, it's best to find a family member or friend with good credit and assets.
  • Co-signers take on responsibility for the loan, late payments, penalties, and any collateral they're required to provide.

Why a Co-Signer Is Needed for a 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 business start-up loans because the new business owner has no or little business credit history for the bank to gauge your ability to pay back the loan. Additionally, small businesses have a high failure rate, which increases the risk the lender takes on.

Who Can Be a Co-Signer 

Anyone can be a co-signer, in theory. That being said, if a lender says you must have a co-signer for a loan, you may want to look first at family members or close friends. A co-signer should be someone you trust, but also someone who has some assets they are willing to pledge and someone who has a very good to excellent credit rating.

What To Know About Being a Co-Signer

Here are some points worth mentioning about co-signers on business loans:

  • The co-signer doesn't just sign on the loan; they're making a promise to repay the loan if the borrower defaults.
  • The co-signer may be 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 may be required to provide a personal financial statement, and the lender will check their credit rating and consider it in the loan acceptance.
  • The co-signer may be required to pay late charges, fines, and penalties if the original borrower fails to do so.


While being a co-signer is a generous act in support of a business owner, the financial consequences can be dire. Co-signers should be certain they have the willingness and resource to repay the loan in the event the borrower defaults.

How the Co-Signing Process Works

When the lender tells the applicant they need a co-signer, several steps typically occur. The co-signer usually must have either an excellent credit rating or, in the case of a business loan, personal or business assets that can be pledged in the event of default. The co-signer must go through the application process along with the applicant, and will likely be asked to produce documents that verify your credit rating and assets. The co-signer signs all loan documents along with the applicant, asserting that he or she will honor the terms of the loan.


The co-signer receives communications from the lender in the event that the applicant does not make payments in a timely manner.

Is Being a Co-Signer Worth It? 

From the standpoint of the business owner who needs a co-signer, it may be the only way to get the money. However, a great co-signer could allow the business owner to get a loan that's bigger than they can afford.

From the standpoint of the co-signer, it may or may not be a smart decision to co-sign. Co-signing for a loan could put the co-signer's relationship with the borrower at risk if they default and the co-signer has to pay down the loan balance, fees, and penalties.

Frequently Asked Questions (FAQs)

Can a business loan be co-signed?

Yes, business loans can be co-signed. If a lender believes your business don't have the credit or assets the lender desires, it may as you to find a co-signer for your business loan.

Who is eligible to co-sign a loan?

Generally speaking, business lenders are looking for a co-signer who has excellent credit and suitable assets to back up your business loan.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. City of Houston. "City of Houston Guide to Business Financing FAQ," Page 2.

  2. Fundbox. "How To Find a Cosigner for a Small Business Loan."

  3. Federal Trade Commission. "Cosigning a Loan FAQs"

  4. "Cosigning a Loan? Know the Risks!"

  5. The Office of Minnesota Attorney General. "Cosigning a Loan."

  6. Accion Opportunity Fund. "Cosigner vs. Collateral for a Small Business Loan."

Related Articles