Article by Roger Schlueter
Business Loan Lenders are notorious for getting your spouse to sign on the loan and guarantee the debt. In the old days this was a common practice, no mater what the credit and collateral was like. Regulation B changed this practice. Under Regulation B the person who is applying for Credit must be looked at on their own merits. The bank or lender must first see if the applicant qualifies under the creditors Standards of Creditworthiness. The Lender may then require the Spouse get another person to sign to strengthen the credit but it does not have to be the spouse.
The main exception to this rule is when the borrower has assets that are owned by both Spouses on the Personal Financial Statement. The Personal Financial Statement must be the statement of the applicant, and as such, only have their Assets and Liabilities on the Statement. The other exception is when the Asset owned by both spouses is used as collateral for the loan.
Business Loan Applications need to have only the Applicants Financial Information included in the Application and Documents. This includes the Personal Financial Statement, Bank Application, and Income Verification. The Applicant needs to make it plain and clear that they are applying for Credit on their own account. Sometimes the bank will still ask about the spouse and when they do, they need to be reminded that you are applying for credit on you own account. This should do the Trick. I wouldn’t bring up Reg B, unless absolutely necessary. Banks do not like borrowers that bring up Federal Regulations. Only bring up Federal Regulations as a last resort.
Banks still expect the spouse to sign and guarantee the loan, so do not be surprised, if the bank asks for the spouses signature and guarantee. The Bank will still try to get the spouse to sign but this may be averted if the spouses keep their finances as separate as they can. Remember to report, on the Personal Financial Statement, only the Borrowers Assets and Liabilities and only use the income of the Borrower to apply for the loan. Remind the bank you are applying for credit on your own account.
Please respond with comments or questions though this blog at roger@rogerschlueter.com or for more contact information please go to my website at schlueterfinancial.com