How to get a business loan with multiple owners

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You’ve done the work of getting business partners on board to work on and grow a business. Now it’s time to look at the next phase of growth using a business loan to gain much-needed capital. But since you’re not going it alone in the business, lenders expect you not to go it alone when getting a business loan either. In short, they require that all business owners with a certain percentage of ownership sign for the loan. Thankfully, getting a business loan with multiple owners requires just a few extra steps, starting with a heartfelt conversation between owners about their finances.

Understand what’s required of you when signing a business loan with multiple owners and how to get ready for your business loan application.

Understanding the business loan application process

Getting a business loan with multiple owners isn’t much different than getting a business loan with one owner. The main difference is that the lender will want all owners with a certain percentage of ownership to sign for the business loan.

For example, many business loans require all owners with at least a 20 percent stake to sign the loan agreement. Some lenders such as alternative lenders may simply require that 50 percent to 70 percent of the ownership be represented. In this case, you can choose which owners sign for the loan, most likely choosing the owners with the strongest finances and credit score.

The lender will also want the same owners to sign a personal guarantee for the loan. The personal guarantee makes each owner personally responsible to repay the loan even if the business takes a downturn and requires owners to repay with personal assets. While personal guarantees add increased risk for business owners, requiring one is standard practice for business loans. Lenders want business owners to have skin in the game to motivate them to be financially responsible with the business loan proceeds and with growing the business.

Understanding the dynamics of multiple ownership

Having multiple owners may or may not be a problem when getting a business loan. It all depends on the financial state and personal credit profile of each business owner who will sign for the loan.

If all owners have strong credit and finances, they should be able to get a business loan with little pushback from the lender. But the trouble comes when one business owner has bad credit or when multiple business owners have fair credit. To lenders, this raises questions about the financial health of the owners and their ability to repay the loan.

While everyone in a company’s ownership should have a conversation about their financial standing, it’s especially important for anyone with a 20 percent stake or more in the company to be honest and upfront about their credit score. Ideally, this conversation would have happened when you decided to go into business with each other.

If one or more owners have shaky finances, you may want to go with a lender that accepts bad or fair credit, such as an online lender. But it may be worth still applying with your preferred lender to see if they will approve your application.

Things to keep in mind for businesses owned by multiple owners

Consider all the factors that could affect getting a business loan with multiple owners:

• Required ownership stake varies by lender: Many lenders require all owners with at least a 20 percent ownership stake to sign for the loan. Some require a lower ownership stake like 15 percent, or they require that any owners representing 50 percent to 70 percent of the loan sign the paperwork.
• Personal financial history: Expect the lender to look into your personal credit score and finances. They want to see a strong credit score as well as a solid history of paying your bills and debts.
• Personal guarantees required: As a standard practice, lenders will likely require that all owners with a certain percentage of ownership to personally guarantee the loan.
• Lying about ownership stake: Not applying with all required owners or reorganizing your business to hide an owner with poor finances could carry legal repurcussions. Be upfront with the lender about who owns how much of the business.

6 steps to get a business loan with multiple owners

Now that you understand how a business loan with multiple owners works, take these steps to apply for the right loan for your business.

1. Understand where your partners are at with their finances. While it’s not an easy conversation, you need to know how your business partners are doing financially. You’ll want to know whether they’re paying bills on time, able to keep up with debt payments and have strong credit. This conversation will help you understand what loans you may qualify for.
2. Choose a type of business loan. Different types of business loans serve different purposes. For example, an equipment loan allows you to buy necessary business equipment with that equipment acting as collateral for the loan. Or if you have outstanding client invoices, you may want to consider invoice financing.
3. Compare lenders. Consider multiple lenders that offer the type of financing you’re looking for. Apply or prequalify with lenders to see the loan terms and interest rates offered. Then, you can choose the loan with the best offer for your business.
4. Fill out the application. Gather the documents needed for the business loan and fill out the loan application. You may need business and personal bank statements and tax returns as well as business profit-and-loss statements, balance sheet and business plan.
5. Wait for approval. Once you apply, you’ll wait to hear back from the lender. Some lenders advertise fast loan approvals within 24 to 48 hours, while others like traditional banks may take a week or longer.
6. All required owners will sign. When you’ve received the loan offer, read through the entire agreement and have all required owners sign for the loan. You will also sign the personal guarantee at this time.

Bottom line

Getting a business loan with multiple owners requires a little extra research and paperwork to get approved. You want to understand where your business partners are in their finances, including their payment histories and personal credit scores. That will inform you of the business loan options available to you.

Then, you can all apply for the business loan and sign the loan agreement. Make sure you compare multiple business loans ahead of time and, if possible, prequalify with lenders to see what loan terms and interest rates are offered to you.

Frequently asked questions

• Can multiple people be on a business loan?
  

  Yes, many business loans require that all owners with a certain percentage of ownership sign for the business loan as well as sign a personal guarantee.

   

• What can disqualify you from getting a business loan?
  

  You can be disqualified if one or more of the business owners has bad credit or poor financial history, if the business doesn’t generate enough revenue or if it has too much debt. If a lender denies you a business loan, you can fix the reason for the denial and reapply or apply with another lender.

   

• What is the 20 percent rule for the SBA?
  

  The 20 percent rule is the rule that all owners with at least a 20 percent ownership stake will need to sign a personal guarantee for an SBA loan. This guarantee makes these owners personally responsible to repay the loan even if the business can’t repay.

   

• Can you get a startup business loan?
  

  Yes, it’s possible to find a startup business loan that will get your business off the ground, but your choices of business loans are limited. Many startup loan lenders require that your business have at least six months in business to qualify. You may be able to qualify for a startup SBA loan without having to show time in the market.