Business advice requested please.
Discussion
Hello all, I have a new business idea which in a nutshell is; have X equipment installed and with minimal maintenance and no staffing will generate £1900/month for many years to come. This is all very nice but it costs around £200,000 to install, which some googling suggests would cost around £1500/month to borrow over 15 years at 4%.
When presented with a solid business plan, containing these numbers, would I get a long term business loan? the idea being once one has been set up look to set up another one and so on.
Thank you brains of PH in advance!
When presented with a solid business plan, containing these numbers, would I get a long term business loan? the idea being once one has been set up look to set up another one and so on.
Thank you brains of PH in advance!
I assume the £200k is to both supply and install.
How much is the equipment going to be worth after 15 years?
You'll unlikely be able to borrow the full £200k so do you have capital already.
To put into perspective, I do a bit of DJaying (partys and pubs) - mainly a hobby I enjoy for which I get paid. Been doing it for over 10 years and average 2 or 3 gigs a month and earn more than you would on this deal and I haven't had to borrow £200k.
How much is the equipment going to be worth after 15 years?
You'll unlikely be able to borrow the full £200k so do you have capital already.
To put into perspective, I do a bit of DJaying (partys and pubs) - mainly a hobby I enjoy for which I get paid. Been doing it for over 10 years and average 2 or 3 gigs a month and earn more than you would on this deal and I haven't had to borrow £200k.
This appears to have no legs on so many levels
There are the definitive costs that you appear not to have taken into account (e.g. insurance) and then the potential costs if anything at all goes wrong or changes, e.g. if income levels drop
The slim margin gives almost no room for any such costs or variables
Then as others have said, you almost certainly need a deposit for a loan of that type & size
Also, have you considered VAT ? I imagine the equipment purchase will be subject to VAT, but will you be VAT registered and if so, without £40k of VAT income to offset, are you sure the VAT can be reclaimed
I think from your figures the loan is of a repayment type (in which instance as it happens I suspect your figures are somewhat optimistic for a loan of this nature) and assuming it is a repayment type, the lender will need assurances that the equipment does not depreciate faster than the capital repayment in order to risk the loan - in reality however, I imagine the kit will drop in value by a minimum of 25% and perhaps more, the moment you take delivery - by value, I mean what it could actually be sold for, after costs, in the real world
Finally, if you don't put it all through a limited company without PGs the personal risks are huge but of course you then have the extra costs of running the ltd co. - not huge but bearing in mind the very slim margins, that would be an issue in this instance
There are the definitive costs that you appear not to have taken into account (e.g. insurance) and then the potential costs if anything at all goes wrong or changes, e.g. if income levels drop
The slim margin gives almost no room for any such costs or variables
Then as others have said, you almost certainly need a deposit for a loan of that type & size
Also, have you considered VAT ? I imagine the equipment purchase will be subject to VAT, but will you be VAT registered and if so, without £40k of VAT income to offset, are you sure the VAT can be reclaimed
I think from your figures the loan is of a repayment type (in which instance as it happens I suspect your figures are somewhat optimistic for a loan of this nature) and assuming it is a repayment type, the lender will need assurances that the equipment does not depreciate faster than the capital repayment in order to risk the loan - in reality however, I imagine the kit will drop in value by a minimum of 25% and perhaps more, the moment you take delivery - by value, I mean what it could actually be sold for, after costs, in the real world
Finally, if you don't put it all through a limited company without PGs the personal risks are huge but of course you then have the extra costs of running the ltd co. - not huge but bearing in mind the very slim margins, that would be an issue in this instance
Chainsaw Rebuild said:
...will generate £1900/month for many years to come.
When presented with a solid business plan, containing these numbers
How do you guarantee that it will generate that return?When presented with a solid business plan, containing these numbers
I can't think of much that had the same price for 20 years. Even if you got a business to sign up for a 20 year contract, most companies don't last that long.
There's a small upside, and many, many costly downsides.
If you only want to make a few % margin, then there's plenty safer ways of making money.
Thanks for the useful replies chaps. It is similar to wind turbines, or solar. So you fit them and they sit there making an average of £2000 a month, of which I give (in the region of, I think) £1500 to the lender. There is about 1 day per year of maintenance, which is in the region of £150.
The question is if I have the survey & report to show that £2000/month will be generated, and the loan is £1500/month will I get a loan of £190000? I only have £10k myself.
I appreciate its not an amazing return on a loan that size, but its quite close to fit and forget - a bit like the solar panels you might have on your roof.
The question is if I have the survey & report to show that £2000/month will be generated, and the loan is £1500/month will I get a loan of £190000? I only have £10k myself.
I appreciate its not an amazing return on a loan that size, but its quite close to fit and forget - a bit like the solar panels you might have on your roof.
To guage how promising this opportunity is I would ask how much of this £200k initial cost could you currently pay without a loan/mortgage? Don't include borrowing money from family or friends.
If you can hand over a significant portion of that amount, would you be willing to risk your own money on this?
If it does generate the income stated without any significant other expenses then it's a decent enough place to put a spare £200k or money you can borrow at a very low interest rate (especially combining either of those things with some definite subsidies) but using your figures you're paying £70,000 in interest versus around £70,000 in potential reward. What if you only make half of what you think you will?
I can see it leading to a lot of sleepless nights unless you plan this very well, it does have potential though if you are thorough and know what you're doing.
If you can hand over a significant portion of that amount, would you be willing to risk your own money on this?
If it does generate the income stated without any significant other expenses then it's a decent enough place to put a spare £200k or money you can borrow at a very low interest rate (especially combining either of those things with some definite subsidies) but using your figures you're paying £70,000 in interest versus around £70,000 in potential reward. What if you only make half of what you think you will?
I can see it leading to a lot of sleepless nights unless you plan this very well, it does have potential though if you are thorough and know what you're doing.
Are we all looking at this in the right way? To me it looks like the OP wants to use a lot of leverage to generate circa £5k per year from a £10k investment.
On the face of it, that's not a bad return at all, however I doubt anyone would be willing to loan the money at a 19:1 ratio. 4 or 5 to one maybe more feasible.
OP, you could think about using asset finance/leasing instead, I suspect the terms would be quite strict though.
On the face of it, that's not a bad return at all, however I doubt anyone would be willing to loan the money at a 19:1 ratio. 4 or 5 to one maybe more feasible.
OP, you could think about using asset finance/leasing instead, I suspect the terms would be quite strict though.
Super Slo Mo said:
Are we all looking at this in the right way? To me it looks like the OP wants to use a lot of leverage to generate circa £5k per year from a £10k investment.
On the face of it, that's not a bad return at all, however I doubt anyone would be willing to loan the money at a 19:1 ratio. 4 or 5 to one maybe more feasible.
OP, you could think about using asset finance/leasing instead, I suspect the terms would be quite strict though.
Agree completely with all of that.On the face of it, that's not a bad return at all, however I doubt anyone would be willing to loan the money at a 19:1 ratio. 4 or 5 to one maybe more feasible.
OP, you could think about using asset finance/leasing instead, I suspect the terms would be quite strict though.
If you look at a solid asset like a house needing 25% 'deposit' (buy to let) I wouldn't be surprised if this mystery 'thing' would require a lot more, unless it is in turn an appreciating asset
If it's anything like the examples above (wind/solar), a LOT of due diligence is required (wind surveys etc). Does anybody guarantee that you'll generate your £2k/month or is that just an amount given by the place trying to sell it to you? It wouldn't take much for you to wipe out your profit and then you find that it's generating £500/month less than you were told (less wind, less sun etc) and you end up with no profit and not being able to repay your loan. I do this kind of thing for a living on a much bigger scale and there's no way you'd get 100% loan, 75% if you're lucky. You have to ask yourself "what are you adding that means the person selling it to you couldn't do it themselves"?
Super Slo Mo said:
Are we all looking at this in the right way? To me it looks like the OP wants to use a lot of leverage to generate circa £5k per year from a £10k investment.
On the face of it, that's not a bad return at all, however I doubt anyone would be willing to loan the money at a 19:1 ratio. 4 or 5 to one maybe more feasible.
OP, you could think about using asset finance/leasing instead, I suspect the terms would be quite strict though.
^^^^ Agreed.On the face of it, that's not a bad return at all, however I doubt anyone would be willing to loan the money at a 19:1 ratio. 4 or 5 to one maybe more feasible.
OP, you could think about using asset finance/leasing instead, I suspect the terms would be quite strict though.
OP can you borrow equity from your house, and combine that with leasing the equipment?
Chainsaw Rebuild said:
Thanks for the useful replies chaps. It is similar to wind turbines, or solar. So you fit them and they sit there making an average of £2000 a month, of which I give (in the region of, I think) £1500 to the lender. There is about 1 day per year of maintenance, which is in the region of £150.
The question is if I have the survey & report to show that £2000/month will be generated, and the loan is £1500/month will I get a loan of £190000? I only have £10k myself.
I appreciate its not an amazing return on a loan that size, but its quite close to fit and forget - a bit like the solar panels you might have on your roof.
Won't that return be based on an estimation of how sunny it is, and thus how much electricity generated?The question is if I have the survey & report to show that £2000/month will be generated, and the loan is £1500/month will I get a loan of £190000? I only have £10k myself.
I appreciate its not an amazing return on a loan that size, but its quite close to fit and forget - a bit like the solar panels you might have on your roof.
You've only got to be a few percent out and you'll be spending the next 20 years doing sun-dances in the front garden to make sure you're not losing money every month!
Think this way instead:
"If I could borrow £200,000, what would be the best way of investing it?"
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