Should You Co-Sign for Company Loans for Your New Business?
Philadelphia business law lawyers can provide invaluable advice to owners of businesses about what their rights are and what their obligations are. We can help you to make sure you protect yourself from personal liability and make smart choices when you are operating a business. One of the important areas which we can offer advice on is protecting your personal assets from being lost due to problems with your business. This can become an issue both when choosing how your business should be structured and when making a decision regarding whether or not you should co-sign loans for your company.
Curley & Rothman, LLC helps business owners at all stages of developing their companies. Whether you are making choices about what type of business entity you should operate under or whether you are making decisions about taking on business debt, we can provide you with advice from a business and legal perspective. To find out more about the ways in which we can assist you with understanding how your business can grow by taking on debt, and how that debt can affect your personal financial risk, give us a call.
Should You Co-Sign Company Loans for Your Business?
When you are financing a business venture, you need to consider possible risk that you are taking on through the method of financing that you choose. If you operate as a sole proprietorship or as a partnership, you are going to be personally responsible for all of the debts that the business takes on. This means that if the company goes into debt, you go into debt. If the company goes bankrupt, you will also go bankrupt and your personal assets will be at substantial risk.
Because of the fact that your personal and business debts are considered one-in-the-same in the eyes of the law, it does not matter if you c0-sign company loans when you run your business as a sole proprietorship or partnership. Either way, you are responsible for the debt that your business owes. In fact, if you are a sole proprietorship, your business may not even be able to get any kind of credit on its own, since you and your company are considered to be the same legal entity.
If you are structuring your business as a corporation, on the other hand, the question becomes more complicated. One of the big reasons why people incorporate companies is because they want their company to be considered an independent legal entity so they do not face the risk of financial loss if their business goes bankrupt or gets into serious debt. If you have structured your company as a corporation for purposes of avoiding personal financial risk, then co-signing for a business loan can threaten this separation of your company and personal finances.
If you co-sign for a loan, you become responsible for the repayment of that loan. If your business cannot pay the debt, you have to pay it. Even if your business goes bankrupt and you are able to get company debts discharged in the bankruptcy proceedings, any debt that you have co-signed for will remain 100 percent your responsibility and you will need to repay it or your own personal credit will be at risk.
Even with this risk, many people do opt to co-sign for business debt. You may decide that you want to do this because you otherwise are not able to get credit for your company. While a large and established corporation can usually borrow independently on its own without any of the company owners co-signing for business debts, this is not the case with a new company that does not have its own assets or its own credit rating.
If you want your new business to grow and you are not able to get credit for the company any other way, you will have to co-sign for the debt in order to get a loan. If you think that your business growth is going to lead to profitability, you can take this chance.
Getting Help From Philadelphia Business Law Lawyers
Philadelphia business law lawyers can provide you with invaluable assistance in understanding what your debt obligations are when you co-sign for your business. We can also help you to make determinations on the best way to secure financing for a growing company. To find out more about the ways in which Curley & Rothman, LLC can help you make smart choices when it comes to company debts, give us a call at 610-834-8819 or contact us for help.