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5 Replies Latest reply: Jan 6, 2009 5:50 PM by moneyresource RSS

Credit Partner Liability

nikki_girl Newbie
Currently Being Moderated
I have a question about being a credit partner. A friend of mine is trying to start their business and needs a credit partner. I would only be able to sign for credit applications. She says that once the business is going, she can remove me from the LLC and I would have no further liabilty as the loan would be under the business name and tax id.

 

Is this true? I do have confidence that she will get it going okay but just on the outside chance that it flops I dont want to be stuck

Thank you!
  • Re: Credit Partner Liability
    bizconsultant Apprentice
    Currently Being Moderated
    This is not true. I facilitate credit partners for some of my business development clients and the only way to get a credit partner off of the loan/credit obligation is to pay off the loan. I arrange it so that its done either as a short term bridge situation or a situation where a cash flowing business is being acquired so that the loan/credit obligation will not be defaulted on. Hope this helps and if you would like to discuss credit partnering further, feel free to contact me at ajones@abcsolutions.cjb.net
    • Re: Credit Partner Liability
      NoBullFunding Apprentice
      Currently Being Moderated
      Not entirely the case BizConsultant...if you are on a loan as a guarantor, a bank could (as its sole discretion) release you from the loan. In order to do this, the business must be operating profitably and the existing guarantors should be strong enough that the bank would be comfortable.
  • Re: Credit Partner Liability
    Lighthouse24 Master
    Currently Being Moderated

    It sounds as though two different concepts are mixed together in your explanation.

    If your friend's intent is to make you a member of the LLC, then you will be a business partner, and (assuming that the business has no credit standing) you will almost surely be required to personally guarantee any loan or credit that the business receives. So, yes, those creditors could and would go after you personally if the business defaulted or failed to pay. Further, if you were a member (but not a manager) of the LLC, you'd have no voice in the operation of the firm (she could basically use your money however she wanted). If your desire to materially invest in this business, but to protect your personal assets, then a different approach (as suggested in the previous post) would be better for you.

    On the other hand, a credit partner (as the term is normally used in my experience) would not be a member of the LLC, but rather a sort of "go between." For example, suppose your friend needed a $50,000 piece of equipment to launch the business, yet neither she nor the business could qualify to buy it (and you could). You would buy the equipment using your credit, then make a lease-to-buy agreement with her where she paid you more each month than the payments you were making. It's a good deal for you because you get "money for nothing" every month, but it's still a good deal for her because even though she is paying a premium, she wouldn't be able to get the equipment any other way (and she's paying that premium to you, her friend, so she doesn't mind). When the equipment is paid off, the business owns it and you're free and clear. If the business defaulted before that or she didn't pay, then you could take your equipment back. Your main risk would be if she damaged it such that you couldn't return/resell it and recover what you still owed.

    Does that make sense? Good luck.
  • Re: Credit Partner Liability
    LUCKIEST Master
    Currently Being Moderated
    Credit Partner Liability, Welcome Pat

    If I was you, I would talk to your Lawyer before putting your name on anything.

    Happy New Year, LUCKIEST
  • Re: Credit Partner Liability
    moneyresource Newbie
    Currently Being Moderated
    Actually there quite a few factors that will affect if you are personally liable or not. On business credit cards, for example, she would be signing on the application and personally guaranteeing the card. The card will not show on her personal credit because it is for business unless she defaults. To obtain actual business credit that is not backed by a personal guarantee is extremely difficult, especially for a new company. She may be able to get certain cards that are specific for a store. (Office supply for example)

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