A partnership is a business entity owned by two or more people who share in profits, losses, and (depending on structure) liability. The three main forms are the general partnership (GP), limited partnership (LP), and limited liability partnership (LLP) — each with different liability exposure and, for lenders, a different personal-guarantee requirement.
A partnership forms when two or more people carry on a business together for profit — in many states a general partnership exists automatically once that happens, even without a written agreement, though a written partnership agreement is strongly recommended to define ownership, profit splits, and exit terms. Three structures matter most for lending purposes: - General partnership (GP) — every general partner is personally, jointly, and severally liable for the business's debts, including debts another partner incurred on the business's behalf. Lenders generally require every general partner to sign a personal guarantee. - Limited partnership (LP) — has at least one general partner (full management control and liability) and one or more limited partners (capital contributors with liability capped at their investment, so long as they stay out of day-to-day management). Common in real estate and investment-fund structures. Lenders typically require only the general partner's personal guarantee, not the limited partners'. - Limited liability partnership (LLP) — available mainly to licensed professionals (law firms, accounting firms, medical practices) in most states. Partners are shielded from liability for another partner's malpractice or negligence but generally remain liable for the partnership's ordinary business debts. Tax treatment: partnerships are pass-through entities. The partnership itself files an informational return (Form 1065, https://www.irs.gov/forms-pubs/about-form-1065) but pays no entity-level federal income tax. Each partner receives a Schedule K-1 (https://www.irs.gov/forms-pubs/about-schedule-k-1-form-1065) reporting their share of income, deductions, and credits, which they report on their personal return. This differs from a C-corp (entity-level tax) but is similar in pass-through effect to an S-corp or a multi-member LLC taxed as a partnership. For lending: partnerships must provide their partnership agreement, EIN, and (for SBA loans) personal guarantees and financial statements from every general partner and any owner holding 20% or more of the business, per SBA affiliation and guarantee rules (https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs). Limited partners under 20% ownership who aren't involved in management are typically excluded from the personal-guarantee requirement.
A general partnership offers no liability shield — every general partner is personally liable for business debts, including debts a partner incurred without the others' knowledge. An LLC (even a multi-member LLC taxed identically as a partnership on Form 1065) creates a separate legal entity that shields members' personal assets from business debts, except where a personal guarantee or fraud exception applies. Many two-or-more-owner businesses that start as informal general partnerships convert to an LLC specifically to get that liability protection.
Partnerships are pass-through entities. The partnership files Form 1065 as an informational return and pays no entity-level federal income tax. Each partner gets a Schedule K-1 reporting their share of the partnership's income, deductions, and credits, which flows onto their personal Form 1040. General partners' distributive share of ordinary income is also generally subject to self-employment tax; limited partners' shares typically are not, though the IRS has scrutinized this distinction in recent years.
Yes. SBA 7(a) and 504 loans are available to partnerships that meet standard SBA eligibility (size standards, for-profit status, U.S. operations). The lender will require personal guarantees and financial statements from every general partner and any owner — general or limited — holding 20% or more of the business. Limited partners under the 20% threshold who aren't involved in management are typically excluded from the guarantee requirement.
Usually not, as long as they hold less than 20% ownership and stay out of day-to-day management — that's the tradeoff that caps their liability at their investment in the first place. A limited partner who crosses into active management, or who owns 20% or more, is treated more like a general partner for guarantee and liability purposes by most lenders and by SBA rules.