Joint Business Loans: Applying with a Business Partner
Understand how joint business loan applications work, how both partners credit and financials are evaluated, and the legal implications of co-borrowing.
When business partners apply for a loan together, each brings their own credit, income, and assets to the application. This can help or hurt your approval odds depending on your respective financial profiles.
This guide explains what to expect when applying jointly.
When Joint Applications Are Required
Lenders typically require all owners to be involved when:
- 20%+ ownership: Most lenders include owners with 20% or more equity
- Personal guarantees needed: All guarantors are evaluated
- SBA loans: SBA requires all 20%+ owners to personally guarantee
- Collateral involves personal assets: All asset owners must be parties
Control vs Ownership
Some lenders look at control, not just ownership percentage. A 15% owner who is also CEO may be required on the application.
How Joint Credit Is Evaluated
Lenders assess each applicant individually and collectively:
| Factor | How It Is Evaluated |
|---|---|
| Credit scores | Both scores reviewed; lowest score often controls |
| Credit history | Both histories checked for red flags |
| Personal income | Combined or evaluated separately by lender |
| Personal assets | May be combined for collateral evaluation |
| Personal debts | Both parties debt obligations considered |
| Tax returns | Personal returns required from all applicants |
The Weakest Link Problem
Joint applications can be limited by the weakest applicant:
- One low credit score can hurt: Lender may use lowest score or average
- Derogatory marks matter: Bankruptcies, judgments on either applicant are issues
- High personal debt: Either partner debt-to-income ratio can be a problem
- Verification challenges: If one partner cannot verify income, it affects both
Review Both Credit Reports First
Before applying jointly, both partners should pull their credit reports and discuss any issues. Surprises during underwriting cause delays or denials.
The Strength in Numbers Advantage
Joint applications can also help:
- Combined income: Higher total income can support larger loan
- Combined assets: More collateral available for secured loans
- Diverse experience: Multiple owners with relevant experience
- Redundancy: Lender sees less risk with multiple qualified guarantors
Required Documentation for Each Partner
Each applicant typically provides:
- Personal tax returns: 2-3 years of complete returns
- Personal financial statement: Assets, liabilities, net worth
- Photo ID: Government-issued identification
- Social Security number: For credit check authorization
- Proof of address: Recent utility bill or bank statement
- Resume: Sometimes required for experience evaluation
Joint Guarantee Implications
Understand what joint guarantee means:
- Joint and several liability: Each guarantor is responsible for 100% of the debt
- Not proportional: Lender can pursue any guarantor for full amount
- Partnership dissolution: Loan obligations remain regardless of partnership status
- Death of partner: Surviving partners remain liable; estate may also be liable
Joint and Several Is Serious
If your partner defaults or disappears, you owe the entire loan. This is true even if you owned only 20% of the business. Consider this carefully.
Structuring Partner Applications
Options to consider:
| Approach | When to Use | Considerations |
|---|---|---|
| All partners apply | Required for SBA, most bank loans | Standard approach, shares liability |
| One partner as primary | When one has much stronger credit | May still need guarantee from others |
| Separate loans | When partners have very different profiles | More complex, may not be feasible |
| Corporate-only loan | Established businesses with strong history | Rare for small businesses, no personal guarantee |
Partnership Agreement Considerations
Before applying for a joint loan, ensure your partnership agreement addresses:
- Loan decision authority: Who can bind the partnership to debt?
- Payment responsibility allocation: How are payments shared?
- Default consequences: What happens if one partner cannot pay?
- Buyout provisions: How is debt handled if partner leaves?
- Death or disability: Insurance and succession planning
When One Partner Should Not Be Included
Consider excluding a partner from the application when:
- Credit is significantly impaired: Recent bankruptcy, multiple delinquencies
- Legal issues exist: Active litigation, judgments, liens
- They are a passive investor: Not operationally involved
- Ownership is below threshold: Less than 20% and lender does not require
Discuss Openly
Have an honest conversation with partners about credit situations before applying. Working together to address issues is better than discovering them during underwriting.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
Third-Party Lenders: All loan products are offered by independent third-party lenders. Liminal Lending Co. is an Independent Sales Organization (ISO) and receives compensation from lenders for successful referrals. Terms and conditions of any loan are between you and the lender.
Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.