Business Partner with Bad Credit

[gilly0643]

Hello,

So me and my business partner are opening up a gift shop.

We have done the business plan etc. However, upon applying for a Start Up business loan they said that her credit was not good enough and I should apply by myself if we wanted a chance at being accepted for the loan.

I fear that if I don't apply for this loan (with a very small %) and it is government backed, we won't stand a chance with any banks which offer a higher interest rate with her credit rating and it should be done solely in my name if we have any chance at funding.

I don't think any red flags ring with me because it was circumstances beyond her control why she has the bad credit rating and I would only ever want to go into business with her as the skills I lack she strongly possess.

Does anyone have any advice how this would work in a partnership? Could we get something drawn up by a solicitor to make her also liable?

If our business ends up failing I don't particularly want to be stumped with the debt and not have a leg to stand on legally. I know completely that she wouldn't walk away from it but from a business/legal point of view, I don't like the fact that she can if she wanted too.

On the other hand, if I don't, we won't have the funding for our business.

Can anyone give me any advice? It would be gratefully appreciated.

Thanks,

Gillian

 

[The Byre]

Sop, let's go through the major points, one by one -

upon applying for a Start Up business loan they said that her credit was not good enough and I should apply by myself if we wanted a chance at being accepted for the loan.

Which in my book, makes you the prime risk-taker and therefore the businesswoman.

it should be done solely in my name if we have any chance at funding.

Again, it's then your business.

I don't think any red flags ring with me because it was circumstances beyond her control why she has the bad credit rating and I would only ever want to go into business with her as the skills I lack she strongly possess.

There's no such thing as circumstances beyond our control when it comes to credit rating. If (for example) she marries a dead-beat who runs up debt or starts a wonky business that fails, being partner to such tomfoolery is 100% within her control. If she was stupid enough to counter-sign some credit agreement for a friend, husband or relative, that puts her right into the list of nominees for my 'Idiot of the Year' Award.

Sorry to be bunt here, but that sort of thing shows a gross lack of judgement!

Given her severe handicap, those 'special skills' would have to be pretty bloody magic, before I would even begin to think about any kind of closer business relationship with somebody who goes off the rails with bad credit. Under special skills, I mean an ability to write brilliant computer code, or ownership of several key patents. Run-of-the-mill stuff like doing the books ain't a special skill.

Does anyone have any advice how this would work in a partnership? Could we get something drawn up by a solicitor to make her also liable?

Partnerships are deadly, as each partner is responsible for all debts run up by the other partner(s) in the name of the business. A lawyer could draft some articles of association, i.e. a partnership agreement, but despite that, I would give the partnership idea a total body-swerve and opt (if at all!) for a Ltd.

If our business ends up failing I don't particularly want to be stumped with the debt and not have a leg to stand on legally. I know completely that she wouldn't walk away from it but from a business/legal point of view, I don't like the fact that she can if she wanted too.

Well, you would, 100%. She would not have a choice of wanting or not wanting to walk away from the debt. If the business fails and has debt, your creditors decide who pays what. Not your 'partner'.

On the other hand, if I don't, we won't have the funding for our business.

You have fallen in love with the idea of running a business with your friend. Put on some Big Girl trousers and start thinking like an adult and a hard-headed businesswoman who wants to succeed and not like a teenager infront of a stupid hot-hatch that he desires.

"Wow man! I mean it's like so kewl! And buying it would like make total sense Dad! Like I could drive places and you wouldn't have to pick me up and drive all over town just so I can like attend lessons and football practice and stuff!"

Five things speak - well shout from the bloody rooftops - against this plan of yours -

1. Gift shops are seldom good businesses.

2. Bricks and mortar shops are failing a six-pack at a time.

3. Going into business with a partner of ANY sort is dangerous, to say the least.

4. Going into business with someone who is both impecunious AND has a poor credit rating is suicidal.

5. NEVER and yes, I do mean NEVER go into business with a friend. You are guaranteed to lose both the business and the friend.

Warren Buffett "A friendship based on business is better than a business based on friendship."

 

[Mark T Jones]

Sop, let's go through the major points, one by one -



Which in my book, makes you the prime risk-taker and therefore the businesswoman.



Again, it's then your business.



There's no such thing as circumstances beyond our control when it comes to credit rating. If (for example) she marries a dead-beat who runs up debt or starts a wonky business that fails, being partner to such tomfoolery is 100% within her control. If she was stupid enough to counter-sign some credit agreement for a friend, husband or relative, that puts her right into the list of nominees for my 'Idiot of the Year' Award.

Sorry to be bunt here, but that sort of thing shows a gross lack of judgement!

Given her severe handicap, those 'special skills' would have to be pretty bloody magic, before I would even begin to think about any kind of closer business relationship with somebody who goes off the rails with bad credit. Under special skills, I mean an ability to write brilliant computer code, or ownership of several key patents. Run-of-the-mill stuff like doing the books ain't a special skill.



Partnerships are deadly, as each partner is responsible for all debts run up by the other partner(s) in the name of the business. A lawyer could draft some articles of association, i.e. a partnership agreement, but despite that, I would give the partnership idea a total body-swerve and opt (if at all!) for a Ltd.



Well, you would, 100%. She would not have a choice of wanting or not wanting to walk away from the debt. If the business fails and has debt, your creditors decide who pays what. Not your 'partner'.



You have fallen in love with the idea of running a business with your friend. Put on some Big Girl trousers and start thinking like an adult and a hard-headed businesswoman who wants to succeed and not like a teenager infront of a stupid hot-hatch that he desires.

"Wow man! I mean it's like so kewl! And buying it would like make total sense Dad! Like I could drive places and you wouldn't have to pick me up and drive all over town just so I can like attend lessons and football practice and stuff!"

Five things speak - well shout from the bloody rooftops - against this plan of yours -

1. Gift shops are seldom good businesses.

2. Bricks and mortar shops are failing a six-pack at a time.

3. Going into business with a partner of ANY sort is dangerous, to say the least.

4. Going into business with someone who is both impecunious AND has a poor credit rating is suicidal.

5. NEVER and yes, I do mean NEVER go into business with a friend. You are guaranteed to lose both the business and the friend.

Warren Buffett "A friendship based on business is better than a business based on friendship."

Harsh, but largely fair. Partnerships can and do succeed, many also fail, as can be witnessed by posts ad infinitude on this forum

The problem being that the partners dive in together with common goals and ideals but completely fail to question what is expected from eachother or what final expectations are

In this case, you are entering on an uneven basis and a dubious element of trust on the funding

Having spent my working life in the funding business, Including a lot of collections work, what I would say is that whatever agreement you get drawn up, your chances of collecting when push comes to shove are virtually nil. 'Blood out of a stone' would be the common cliche

You could create an agreement where your friend gets partnership once the loan is repaid, or an uneven partnership, where you are the majority owner

In any case, put time into being absolutely clear about roles, responsibilities and outcomes an have a partner agreement!

 

[billmccallum1957]

Rather than a partnership, look at a limited company, with you as the majority shareholder (the limited liability might prove useful further down the line).

 

[Thermodynamic Man]

Pearls of wisdom there Byre... never a truer word said ( or written in this case but you know what I meant)