Business A/C & Overdraft - Can anyone give advice?
Discussion
Good evening all, I know many of you have businesses and just wish to pick your brains for a moment - any advice would be warmly appreciated.
I am in the process of starting a business with a colleague and need to borrow around £80-£100k. I have been told it is best to take this in the form of a business overdraft? (as we hope to not use all funds and only pay interest on the amount we use, yet be able to use all funds if needed. Nor to we wish to pursue an investor). The account will be used mainly to pay wages and overheads/offices (no stock)& to receive client payments.
Can anyone recommend a good bank and any advice on how these things work (typical rates/charges/proceedure & how long it usually takes to get one etc). We both have capital in our homes, no bad credit history & have been employed for over 10 years.
Many thanks
Soir
I am in the process of starting a business with a colleague and need to borrow around £80-£100k. I have been told it is best to take this in the form of a business overdraft? (as we hope to not use all funds and only pay interest on the amount we use, yet be able to use all funds if needed. Nor to we wish to pursue an investor). The account will be used mainly to pay wages and overheads/offices (no stock)& to receive client payments.
Can anyone recommend a good bank and any advice on how these things work (typical rates/charges/proceedure & how long it usually takes to get one etc). We both have capital in our homes, no bad credit history & have been employed for over 10 years.
Many thanks
Soir
There is a catch with overdrafts which has been known to cause problems. Generally they can be called in at a moments notice which can cause huge cashflow problems.
Depending on the size of the debt and the bank's approach it might be possible to set up a loan that acts like an overdraft - basically you only pay interest on the amounts drawn. The advantage of a loan is that as long as you meet the repayments you cannot be required to repay everything you borrowed. The downside is that you have to keep making the repayments.
Offhand I don't know of any bank doing this because my clients are all property based and have special arrangements but it is worth looking around.
Whatever approach you take, read the small print to look out for these clauses.
Depending on the size of the debt and the bank's approach it might be possible to set up a loan that acts like an overdraft - basically you only pay interest on the amounts drawn. The advantage of a loan is that as long as you meet the repayments you cannot be required to repay everything you borrowed. The downside is that you have to keep making the repayments.
Offhand I don't know of any bank doing this because my clients are all property based and have special arrangements but it is worth looking around.
Whatever approach you take, read the small print to look out for these clauses.
Many thanks for all the replies. To answer the last question, I honestly do not know (was hoping for some advice on here)
Basically my 'partner' runs this type of business at the moment (for two chaps who do not get involved) so therefore has all the contacts required, the business plan will be sound and we have capital in our homes to secure against, but as this is a new business we won't have any trading history - yet we will need around £80-100k - would this make it very difficult without history?
Basically my 'partner' runs this type of business at the moment (for two chaps who do not get involved) so therefore has all the contacts required, the business plan will be sound and we have capital in our homes to secure against, but as this is a new business we won't have any trading history - yet we will need around £80-100k - would this make it very difficult without history?
Hi Eric
I believe you are an expert in this field - would you mind giving me a minute of your time? Can you expand on this for me (in lame-mans terms!) just how difficult it would be, or how we go about getting one?
I always assumed we could go to our personal bank with a strong business plan, guarantee capital in our homes against the loans or o/d and be okay from there?
I have a friend who specialises in corporate loans and he assures me he will be able to put it through for us, but I didnt want him to 'sell' us the best thing for him and I really wanted to get some advice from any independent finance or business owners on here to see if we could do things better. I've not discussed rates or anything with said friend yet).
I believe you are an expert in this field - would you mind giving me a minute of your time? Can you expand on this for me (in lame-mans terms!) just how difficult it would be, or how we go about getting one?
I always assumed we could go to our personal bank with a strong business plan, guarantee capital in our homes against the loans or o/d and be okay from there?
I have a friend who specialises in corporate loans and he assures me he will be able to put it through for us, but I didnt want him to 'sell' us the best thing for him and I really wanted to get some advice from any independent finance or business owners on here to see if we could do things better. I've not discussed rates or anything with said friend yet).
The only way you will be able to secure an overdraft facility of this size is if you give personal guarrantees - the bank will require you will need to give the bank statements of personal assets/values etc; you will need to meet tha bank's legal costs, and you will need to pay the relevant overdraft fee.
For £100k this wil probably be legal fees of 7-800, plus overdraft setup fees of ~1% = £1000.
(That's if they agree to it in the first place).
For £100k this wil probably be legal fees of 7-800, plus overdraft setup fees of ~1% = £1000.
(That's if they agree to it in the first place).
Is the business intending to operate through a limited company or as a sole tradership/partnership?
Obviously, with no trading track record to show a potential lender, they will look on the business venture as a relatively "higher risk" situation than they otherwise might. Therefore, they will look for some sort of surety to try and safeguard their "investment" in your business. If the business has assets of its own, security could be taken out against them. If the directors/partners/proprietors have personal assets THEY can be put up as surety. Obviously, if the business is a limited comapny, security on directors' personal assets undermines some of the advantages of operating through a limited company.
Financing through fixed loans is preferable to financing purely through overdraft facilities. However, a mixture of both might be the final solution with the fixed loan financing longer term costs (fixed assets mainly) and the overdraft financing the day to day working capital.
Obviously, with no trading track record to show a potential lender, they will look on the business venture as a relatively "higher risk" situation than they otherwise might. Therefore, they will look for some sort of surety to try and safeguard their "investment" in your business. If the business has assets of its own, security could be taken out against them. If the directors/partners/proprietors have personal assets THEY can be put up as surety. Obviously, if the business is a limited comapny, security on directors' personal assets undermines some of the advantages of operating through a limited company.
Financing through fixed loans is preferable to financing purely through overdraft facilities. However, a mixture of both might be the final solution with the fixed loan financing longer term costs (fixed assets mainly) and the overdraft financing the day to day working capital.
soir said:
I have about £70-80k capital in my house (further £90k mortgage, £10k car loan and no bad credit history) my partner has about the same...
be very very careful with all this. When setting up a business - any business - you will of course be absolutely confident in its success, otherwise you wouldn't be doing it. However, it is a sad fact that a significant number of businesses do fail. If you've put up a guarantee, then you have to be absolutely comfortable of the fact that it may be called in at some point. I have had this happen to me once (rogue 'colleague' left the country with the bank account). I am also aware of 2 other folks who have lost their homes as a result of guarantees being called.
You perhaps want to look at the 'Small Firms Loan Guarantee Scheme', which for a small premuim reduces your risk quite significantly. Details from the local DTI/Enterprise office or whatever. Look at it this way, are you prepared - right now - to borrow on the equity of your property and put the cash into the company without security? If you're not (due to risk), then trust me, a guarantee is no less risky. If you are, then why not consider it? Nothing like putting your own hard cash into the business to focus the mind, plus no messing around with business loans and the like.
Best of luck with the venture, but do at least consider the 'worst case'. I've met lots of folks who have got in to the mindset that a bank loan as some sort of investment, that in the worst case will just 'go away'. It won't. The banks will get their money back somehow.
WB
Thanks for the reply Eric. There are only two of us, but we assumed a limited company was the best way forward.
No assets in the business itself, but we have decent capital in our homes.
Costs will be wages for about 8 people, rent and business rates etc.. - no marketing or phone bills, nor much capital equipment needed, just telephones. Predicted we will use £100k in 6 months - However if funds come in straight away (which is highly feasible) we hope then to pay off loan asap, or not use all of the amount borrowed.
No assets in the business itself, but we have decent capital in our homes.
Costs will be wages for about 8 people, rent and business rates etc.. - no marketing or phone bills, nor much capital equipment needed, just telephones. Predicted we will use £100k in 6 months - However if funds come in straight away (which is highly feasible) we hope then to pay off loan asap, or not use all of the amount borrowed.
but what business area is this in - that is also a key factor when assessing the risk of the loan.Agree with tvrolet, look at the SFLG scheme, I have used this twice in then past, once to borrow £30K and the other time to borrow £80K. Yes I know you pay a slight premium in interest rate but I've borrow significant amounts in the past 12 years of being in business and never undertaken any personal guarantees (except againt cars, which could be easily disposed of), and I'm not going to do so now!!
If you think that money will come in fairly quickly, then you also could consider factoring or invoice discounting, another easy way to borrow funds with your debtors being used as security. Works if you expect rapid (or consistent) growth (alos has the benefit that someone else is busy collecting the debts leaving you to get one with developing the business). However if the business goes through cyclic periods then I would not recommend this route as in the lean times you run out of money as you've already borrowed from the factor/invoice discounter. But as long as you keep to some strict rules and don't overstretch yourself it can work.
I would go down the route of putting your house on the line (as security) as your very last option (better to extend your mortgage and put cash into the business as a directors loan)
Hope that helps (and get ready to sell the Boxster, you don't need that now and if it goes to plan you buy something better in the future!)
davidy
If you think that money will come in fairly quickly, then you also could consider factoring or invoice discounting, another easy way to borrow funds with your debtors being used as security. Works if you expect rapid (or consistent) growth (alos has the benefit that someone else is busy collecting the debts leaving you to get one with developing the business). However if the business goes through cyclic periods then I would not recommend this route as in the lean times you run out of money as you've already borrowed from the factor/invoice discounter. But as long as you keep to some strict rules and don't overstretch yourself it can work.
I would go down the route of putting your house on the line (as security) as your very last option (better to extend your mortgage and put cash into the business as a directors loan)
Hope that helps (and get ready to sell the Boxster, you don't need that now and if it goes to plan you buy something better in the future!)
davidy
SFLG loans are available to those who can effectively demonstrate that they are not in the position to put funding of their own into a business (ie have little or no equity). Yes you pay a premium but your house does not go on the line, basically the loan is underwritten by the DTI (to the bank) and you pay a surcharge for that.
You will need good business plans and the each bank that you take it to will review it (having a free review is good!!)
If you have significant equity in your own property, I would suggest remortgaging it to a certain level, then using an SFLG to generate the rest of the funds. You will need to have a chat with an accountant (or friendly person in banking) to determine what that certain level is.
See here for more on SFLG www.businesslink.gov.uk/bdotg/action/detail?r.s=sl&type=RESOURCES&itemId=1074447105
Hope that helps
davidy
>> Edited by davidy on Monday 7th November 12:15
You will need good business plans and the each bank that you take it to will review it (having a free review is good!!)
If you have significant equity in your own property, I would suggest remortgaging it to a certain level, then using an SFLG to generate the rest of the funds. You will need to have a chat with an accountant (or friendly person in banking) to determine what that certain level is.
See here for more on SFLG www.businesslink.gov.uk/bdotg/action/detail?r.s=sl&type=RESOURCES&itemId=1074447105
Hope that helps
davidy
>> Edited by davidy on Monday 7th November 12:15
Good morning all.
I've checked with a few of the major banks and the most they will lend for a new business account is a maximum of 50% (so £50k) and we need to fund the other £50k ourselves - which we would have to raise by means of remortgage (so probably best to remortgage the full amount?)
Partner and I are both tied in to our mortgages so to remortgage would warrant a redemption penalty. Other options are:
1) Secured Loan (around 9% at the moment)
2) Further Advance (from current mortgage lender)
For option 1 & 2 I assume we would have to tell them the money was for investment/car upgrade or something, rather than a new business?? Would further advance be more cost effective than a secured loan?
Anyone on here have any knowledge of best loan to get?
Warm regards
I've checked with a few of the major banks and the most they will lend for a new business account is a maximum of 50% (so £50k) and we need to fund the other £50k ourselves - which we would have to raise by means of remortgage (so probably best to remortgage the full amount?)
Partner and I are both tied in to our mortgages so to remortgage would warrant a redemption penalty. Other options are:
1) Secured Loan (around 9% at the moment)
2) Further Advance (from current mortgage lender)
For option 1 & 2 I assume we would have to tell them the money was for investment/car upgrade or something, rather than a new business?? Would further advance be more cost effective than a secured loan?
Anyone on here have any knowledge of best loan to get?
Warm regards
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