How partnerships and business credit can affect your business’s ability to acquire capital, and what to know before shaking hands
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Having a partner in a business has its advantages. It helps with handling the work load, adds additional expertise in your weaker areas, and you have another person in your company who really cares about the long term success of the business. Some of the greatest companies ever formed were started under partnerships.
But they can also be a thorn in your side when it comes to obtaining financing for your business. Knowing your prospective partners financial and credit situation is extremely important. We see it time and time again…. two or three partners submit an application for financing only to be declined because one of the partners has a poor credit report or a bankruptcy.
You cannot count on the business alone to carry the financing, if you’re a small business, most leases and bank loans will require personal guarantees from the owners of the business and lenders need to review personal credit.
When you take on a partner you are also taking their credit profile with them. You could be setting the partnership up for a lot of strain if you don’t have the credit conversation before joining up.
Before starting a partnership, ask your prospective partner if you can have a third party review a copy of their personal credit reports to access any short comings or add to the strength of it. They can access this for free at freecreditreport.com or Brickhouse Capital can also provide free unbiased consulting in this matter if a credit application is submitted.
If you get a copy of a credit report, check to see if there are any collections, bankruptcies, tax liens, and how much unsecured debt they may have. Excessive maxed out credit card debt is a sign of future trouble. Try and spot trouble early, and avoid the headache of a lack of funding for your business or even a legal battle down the road.