Does your business have multiple owners? Are you trying to procure funding? Wondering how the business loan application process works with multiple owners involved? Look no further! We’ve got insight for you.
Applying for small business loans with multiple owners can be complicated, involved, and fraught with paperwork. However, being informed and knowing what to expect can eliminate stress and contribute to success. This is especially true when more than one owner is involved.
Before approaching business lenders or filling out forms, it is imperative that you consult the experts, namely your accountant and your attorney(s). We also encourage you to talk to a lending expert (like us). There are many lending options available in today’s market. It’s important to do your research and find the business funding product that best suits your situation, need, and borrowing capability.
Beyond the experts, it’s also important for all owners to understand and prepare for basic industry-standard, loan-processing protocols.
Here are the five primary business loan-processing protocols to prepare for as you and your partners enter the multi-owner loan application arena:
1. LENDERS VIEW YOUR PARTNERSHIP AS A SINGLE ENTITY.
Just like your business, the small business loan is a joint endeavor. This is important to understand as it determines your borrowing power. Business lenders will evaluate each owner individually, but it’s done with an eye towards how each individual affects the partnership’s ability to re-pay the small business loan.
For example, an owner with a poor financial history will cancel out an owner with a strong financial history putting the partnership’s borrowing power at the mid-range level. Owners with higher ownership percentages may be given more weight, but this isn’t something you can bank on.
2. LENDERS VIEW THE BUSINESS AS AN EXTENSION OF THE OWNERS.
It will use each owners’ credit score, credit history, personal debt, etc. to predict the business’ ability to repay the business loan. One owner with a low score, less than stellar credit history, or too much personal debt can negatively impact the business’ ability to procure a small business loan. This especially true of SBA-backed loans.
Ascertaining each owner’s financial health before starting the loan application can prevent unpleasant surprises as well as establish realistic expectations. It may be you need to investigate alternative small business loans.
3. FINANCIALS OF THOSE WITH 20% OR MORE OWNERSHIP ARE GOING TO BE SCRUTINIZED.
This practice was started by the Small Business Association (SBA) as a means to protect lenders and has become industry standard. Let your co-owners know so everyone can be prepared.
4. HAVE PERSONAL COLLATERAL READY.
Again, any owner with 20% or more ownership should be prepared to put personal assets forward as collateral. SBA loans require a personal guarantee from all owners. Other lenders may require more or less personal collateral based on ownership percentages. It’s best to assume each owner will need to do to this to prevent delays.
5. THINK SIX MONTHS AHEAD.
If you and your partners want to redistribute ownership percentage to improve your borrowing power, you’ll need to do so a minimum of six months before beginning the loan application process. The SBA has a six month look-back policy. Other lenders may review your articles of incorporation, tax returns, etc..
In short, this isn’t something you can do at the last minute and still procure funding. It’s a decision that needs to be carefully weighed with a view to long-term goals and needs. We strongly recommend having your lawyer help you as changing ownership percentages has far-reaching legal ramifications.
Multiple owners necessitate extra paperwork. It’s the nature of the beast. However, understanding how the lending industry treats multi-owner business loan applications will help you navigate the process effectively and efficiently. It will help you and your partners organize, prepare, and position yourselves advantageously. It will help you cinch the loan and keep your business moving forward.
Small businesses in the United States are a force to be reckoned with. The SBA and commercial lenders want to be part of that force. W want to help you – regardless of how many owners are involved. Help them help you by being in the know.
Does your business have multiple owners? Are you trying to navigate the small business loan application process? We can help! Our experts are on hand to help you choose the right business loan product, walk you through the application process, and clarify any questions or concerns you have. You can reach them by phone at 855-933-8638 or you can use our Live Chat feature on our website. We look forward to helping you.