Finding Capital for a Business Partnership
Finding capital as a partnership will depend on your credit score and the credit score of each of your partners, your investment in the company, your business plan, personal connections, and friends and family. There are different forms of financing available to meet your business needs
Financial Issues for Partnerships:
- You may face difficulty raising capital from investors because you cannot sell shares of the business.
- Partners collaborate with capital and/or resources into the business.
- Partners can bind the partnership to business deals (with the exception of the sale of the business, or if it is stated otherwise in the partnership agreement).
- Unlimited liability for all business debts or other obligations—each general partner’s personal assets are at risk in case of court judgments or debt. The limited partner’s risk is only the capital invested.
- For loans, the partner with the lowest credit score will affect the loan application.
When financing a partnership, the partner with the lowest credit score will affect the interest rate of the loan or whether the business even gets a loan. In our experience, banks will still give a loan to a partnership where one of the partners has a low credit score if that partner owns less than 10% of the company. Some partnerships opt to buy-out the partner to less than 10% interest. This is not guaranteed to work with all banks, as each has different requirements or appetite for risk.
Another way to offset a low credit score is to increase investment in the business. Bankers like applicants who invest more capital into a business. Think of it this way: If you were a banker, would you prefer a proposal where the borrower invested $20,000 of her own money and was asking for $180,000 from the bank for a $200,000 project or a proposal where the applicant invested $100,000 of her money and asked another $100,000 from the bank?
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