What is a co-maker?
A co-maker is any party that co-signs a promissory note. Each party assumes responsibility for the loan in case any of the other parties fails to pay the loan.
A co-maker is also referred to as a co-guarantor. This person, alongside other parties, promises to pay a principal borrower’s loan if he fails to do so. By contract, co-makers provide additional assurance to a lender who has made a loan to an individual or entity.
Lenders have different policies concerning the requirement of a co-maker in their transactions. A lending institution may require a principal borrower to have a co-maker in instances where the principal borrower fails to meet the credit criteria. The co-maker does not benefit from the loan proceeds, but has an equal responsibility for ensuring that the loan is fully paid. This includes the charges and interest.
A co-maker should fulfill the following conditions:
- Be a friend or relative living at a different address.
- Have a reliable and stable source of income, with proof, such as pay stubs.
- Have a phone number where the lender can reach him, if needed.
A businessman may decide to take a loan from his investment or commercial bank to grow his business. On submitting his request, one of the requirements is that the borrower have three individuals who will guarantee to fully repay the loan in case he fails to do so. In this case, each of these three individuals is a co-maker.
Are you thinking of applying for a loan for your business? Here are three ways to get a loan for a small business.