Companies with little credit history may need to find additional means to obtain the financial and operational resources they need. Sometimes suppliers refuse to sell products on trade credit or to provide goods for delivery to these companies for fear the customers may not be able to pay. In these cases, the use of a co-borrower on the sales agreement can eliminate the supplier’s concern. Except in rare cases the co-borrower must sign the sales contract.
A co-borrower is an additional borrower. It is a person or entity -- for example, a corporation -- that enters into the same obligations and accepts the same responsibilities as the borrower. However, if the borrower and co-borrower are at different addresses, the lender typically treats the borrower as the primary borrower and will send the bill or payment request to the borrower’s address. If the borrower does not or cannot pay, the co-borrower must make the payments. Any default by the borrower will equally impact the co-borrower.
A contract legally obligates the parties signing the contract to perform according to the terms delineated in the agreement. In a sales contract, one party agrees to sell and another party agrees to buy certain goods and services for a specified price at a particular time. The signature of the parties indicates their agreement with the terms and their willingness and intent to comply with the terms.
Because the signature indicates agreement, under nearly all circumstances the co-borrower must sign the sales contract. Otherwise, proof of the co-borrower’s obligation does not exist. Neither the seller nor the buyer can legally bind a person or entity that has not signed a legally binding sales agreement. In general, any attempts to do so constitute fraud.
Exception to the Rule
In some instances a company investor, founder, partner or other individual or entity may enter into a blanket agreement to co-borrow with the company. If such an agreement exists, a co-borrower may not need to sign the actual sales agreement for the co-borrower to be bound by that sales agreement. The blanket agreement must specifically detail the circumstances that apply to the co-borrower, including the maximum amount of indebtedness, time frame and types of indebtedness allowed. The company will usually need to provide a copy of the blanket agreement to the seller for the seller to accept the individual or entity as the co-borrower.
Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.