I'm getting a commercial loan to purchase a property under my LLC. Since this is my first purchase, I'm being asked to list myself and my partner as guarantors.
How will this impact our credit?
Is there a benefit ( as it relates to credit score) to getting a commercial loan as guarantor vs. getting a residential loan as joint owners?
Thanks in advance
We just went through a similar scenario and had the same question as you do. Our lender told us that it will not have any effect on personal credit whatsoever.
@GreatTen Team: There are separate credit scores for your business and your personal credit. Guaranteeing your commercial loan is essentially putting your personal credit up to strengthen the case for someone to lend to your business (which I assume is new). This is considered an indirect liability and the act of guaranteeing does not affect your personal credit score.
Regarding your second question, if we are looking exclusively at the effect on your credit scores, then the commercial loan will apply to the credit score of your business. The residential loan will apply to your personal credit score. Successfully taking these loans and repaying them will improve either score depending on which one you choose. On the other hand, inability to repay will affect them negatively.
Again, if we are only considering the affect on credit scores, and with all the caveats about speaking to the experts in your specific area: If your business is new, it may be beneficial to go that route and establish a business credit profile for future business transactions. This, however, does not address the differences in loan structure/rate/etc. that come with commercial vs. residential loans.
Note: I am not an attorney or a CPA, and the above opinion should not be misconstrued as legal or financial advice.
Generally speaking, your personal credit score will not be impacted by personally guaranteeing a commercial loan. I consider these type of personal guarantees "contingent" liabilities. Your credit score however, could be impacted if the commercial loan goes into default and the lender starts collecting against you personally. If you make your payments and stay in compliance with the commercial loan then there should not be a personal credit issue.
Furthermore, there is not really a similar credit score for a business aside from possibly a Dunn and Bradstreet report. Normally you would purchase a commercial property in a special purpose entity such as an LLC and therefore there would be no history for this entity aside from the subject loan.
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