Business loans

[mikeyboy]

My companies been going for about three months now and its going pretty well.
I'm therefore thinking of getting new offices and hiring some staff.
What is a good ratio of Company Capital to loan capital to make this happen.
i.e. if I think the company is going to have a turnover of £150k should I borrow 25k, 50k or 150k (not that I really need to.)
thanks in advance

[srebbe64]

What a strange question? Firstly, if you can avoid getting a loan then do so. Secondly, profit is the issue not turnover. Thirdly, the bank will be looking at having the loan secured against assets.

[amcphillips]

As your company has only been going three months then most banks will only loan the same amount of what you put in yourself (eg you invest 20k they loan you another 20k) otherwise they'll want to secure it on property or assets

[mikeyboy]

Why is it a strange question?
In my current job I work with people whose entire raison d'etre is lending companies money so they can expand.

In my case I know I can bring in about 100-150k this year in the way I'm operating now. about 60% of which would be profit.

Profit is what you're taxed on right? So if you take a loan on its a liability and counts against profit I believe. Thats one reason for it.
Second if I want to grow the company I need to hire staff and this needs money! so the short term solution is to borrow enough to hire the right staff not just the cheapest to cope with the work I have on.
As for the Assets. My brief understanding of accountancy is that cash is an asset and that was my point about the turnover!

[mikeyboy]

amcphillips said:

As your company has only been going three months then most banks will only loan the same amount of what you put in yourself (eg you invest 20k they loan you another 20k) otherwise they'll want to secure it on property or assets

That what I thought. I wanted a bit of clarification on it though. So if I say that I put in 20k they'll lend me £20k and If I have a fee of 5k and put that back into hiring someone etc. does that count as me putting in 5K or as an asset?

[simsy]

HSBC usually wont lend more than £35K unsecured.........would be interestedto know if anyone has more unsecured with them

[davidy]

mikeyboy

Consider the DTI backed SFLG (Small Firms Loan Guarantee scheme), its meant for satrtup businesses. I have used these in the past for purchasing captial assets, but I used factoring for the day to day cashflow. I'd have a look at both, but for either you will need a decent business plan.

davidy

[mikeyboy]

Thanks everyone for the advice.
I'd better polish that business plan.

[davidd]

So thats 60% of £100k - £150k meaning you are talking about a profit of £60 - £90k ?

Is that after you have taken what you need?

D

[mikeyboy]

Potentially, it would rather depend on how much I would put back into the business in regards to hiring, It infrastructure and the usual marketing and advertising.

Curiously my industry is more profitable the smaller the company is due to it being quite high earning with very low overheads (i work from home so don't have office rental etc.)the more people you hire the more it costs in infrastructure (obviously)so the profit figure can drop quite dramatically if you don't hire big producers or have too many admin.
this year you could knock about 20K off that profit figure you mentioned due to having to high a junior. Hence the question.

[obiwonkeyblokey]

Having been in a similar situation to you, I would adise invoice factroing rather than a loan.