Spousal Signatures On A Business Loan

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Question:

We are renewing a commercial loan secured by real estate owned 100% by the business. The business is owned 100% by Mr. Business Owner. In the past, the loan was individually (not jointly )guaranteed by Mr. Business Owner and his wife, Mrs. Business Owner. We have no financials due to the value of the property and loan/value ratio.We don't know what % ownership the wife has in any of Mr. Business Owner's assets. Do you think there is any value in keeping Mrs. Business Owner as a guarantor? How would I justify or explain to the loan review committee we really don't need her as a guarantor?

Answer:

The "value" in keeping the wife as a guarantor is that you are inviting a lawsuit. It sounds as though her signature may have been illegally required in the first place. If so, now is definitely the time to drop it. Creditors may not require the signature of a spouse to guarantee a loan simply because she is there. All signatures must be justified based on ownership of the business and/or of the property used to secure the loan. Ideally, signatures should be on security instruments rather than guarantees.

First published on BankersOnline.com 04/21/03