Lenders want as much assurance as possible that money they lend will be repaid. As a result, when you borrow money, lenders will likely require you to have an equity investment and may require a co-signer on the loan.
Posted in Get Financing on Saturday, August 15, 2015
An equity investment is essentially a down payment in some form or another. The lender will want the borrower to have a financial stake in the practice. An equity investment may come in many forms such as personal savings, loans or gifts from family members or friends, or pledging collateral.
Why Do You Need a Co-Signer?
Another way to make financing your practice more attractive to a lender is to have a co-signer on the loan. The co-signer essentially agrees to repay the loan in the event the primary borrower is unable to. Clearly, this is a serious decision to be made as it is a legal obligation on the part of the co-signer and they are using their credit worthiness to secure the loan. Many times, the co-signer is a parent or relative of the borrower.
In some cases, a co-signing arrangement is referred to as a guarantee or indemnity. The lender may require the co-signers to pledge collateral, such as a mortgage on their house, or other assets, to secure the obligation.
Because co-signers are assuming risk by guaranteeing repayment of the loan, it will be necessary to establish a degree of confidence that your business plan is viable and that you have the skills to successfully run the practice and repay the obligation.
After the loan has been performing for a period of time, in other words, payments are being made in full and on time, lenders may be willing to remove the co-signer from the loan. If a successful track record has been established, the lender may comfortable with the primary borrower being solely responsible for repayment. Typically, a minimum period of time would be one year before a lender considers altering terms of the loan, such as removing a co-signer. And lenders' criteria may differ.