Raising operating cash for small ltd company
Discussion
Hi all,
I'm looking for some help/suggestions/advice on how to raise cash for my company - this has been covered before, and recently, but I'm in a slightly different situation, which hopefully gives me plenty of options, I'm just looking for an opinion into what's best.
The situation is this:
I run a small niche publishing company (structure is limited company), specialising in automotive industry research and analysis. I'm currently about to start building a new revenue stream for the company, for which I need cash to invest. At the same time, I have a slightly tight cashflow situation at the moment. This is going to pick up in a few months, but I need operating cash now to keep plans going forward. Not paying myself for a couple of months would solve it, but is not an option as I currently am the sole breadwinner while wife is on maternity leave.
I only need to raise about £5k, which is not a lot in the grand scheme of things, so I have a couple of options open:
1. A business overdraft. This is no problem to arrange, but the bank charges a hefty setup fee and a high APR (10.7%) on any borrowings
2. A business loan. Again no problem, but again extortionate APR - 11.9%
3. Private loan. I quite like this option, as again it's easy to arrange, has a much more competitive APR (6-7%), and doesn't require me to sign personal guarantees and all that. However, I'm not sure how I can put the money into the business as a director's loan, and what the tax implications of doing that are.
So, er, that's it really. My question is:
- are there any other good options I haven't thought of?
- am I likely get a better deal on the business loan with another bank (that I don't currently bank with?)
- is the director's loan a good idea, and if yes, how would it work?
Thanks very much indeed for any thoughts/help offered, it's very much appreciated.
I'm looking for some help/suggestions/advice on how to raise cash for my company - this has been covered before, and recently, but I'm in a slightly different situation, which hopefully gives me plenty of options, I'm just looking for an opinion into what's best.
The situation is this:
I run a small niche publishing company (structure is limited company), specialising in automotive industry research and analysis. I'm currently about to start building a new revenue stream for the company, for which I need cash to invest. At the same time, I have a slightly tight cashflow situation at the moment. This is going to pick up in a few months, but I need operating cash now to keep plans going forward. Not paying myself for a couple of months would solve it, but is not an option as I currently am the sole breadwinner while wife is on maternity leave.
I only need to raise about £5k, which is not a lot in the grand scheme of things, so I have a couple of options open:
1. A business overdraft. This is no problem to arrange, but the bank charges a hefty setup fee and a high APR (10.7%) on any borrowings
2. A business loan. Again no problem, but again extortionate APR - 11.9%
3. Private loan. I quite like this option, as again it's easy to arrange, has a much more competitive APR (6-7%), and doesn't require me to sign personal guarantees and all that. However, I'm not sure how I can put the money into the business as a director's loan, and what the tax implications of doing that are.
So, er, that's it really. My question is:
- are there any other good options I haven't thought of?
- am I likely get a better deal on the business loan with another bank (that I don't currently bank with?)
- is the director's loan a good idea, and if yes, how would it work?
Thanks very much indeed for any thoughts/help offered, it's very much appreciated.
Borrow the 5k as a personal loan and pay a cheque into the business account for 5k. It goes down as a 5k directors loan. You then take it back out when the business can afford it, or take out the equivelent from the business each month too cover the repayments, against the directors loan account. Upto 5k. You pay the repayments. I don't think you can charge the business interest. If you/wife are the only shareholders you can recoupe the interest in other ways!!!!
(Eric Mc will be along soon to give a far more comprehensive version!)
(Eric Mc will be along soon to give a far more comprehensive version!)
Paul.B said:
Borrow the 5k as a personal loan and pay a cheque into the business account for 5k. It goes down as a 5k directors loan. You then take it back out when the business can afford it, or take out the equivelent from the business each month too cover the repayments, against the directors loan account. Upto 5k. You pay the repayments. I don't think you can charge the business interest. If you/wife are the only shareholders you can recoupe the interest in other ways!!!!
(Eric Mc will be along soon to give a far more comprehensive version!)
(Eric Mc will be along soon to give a far more comprehensive version!)
Agreed,
Although I would have thought you could get tax relief on the interest?
This is by far the best way of doing things, especially if getting a business loan/overdraft set up needs your personal guarantee anyway.
A personal loan therefore offers you exactly the same personal risk, and can be sorted in a lot less time at a lower rate.
Paul.B said:
Borrow the 5k as a personal loan and pay a cheque into the business account for 5k. It goes down as a 5k directors loan. You then take it back out when the business can afford it, or take out the equivelent from the business each month too cover the repayments, against the directors loan account. Upto 5k. You pay the repayments. I don't think you can charge the business interest. If you/wife are the only shareholders you can recoupe the interest in other ways!!!!
(Eric Mc will be along soon to give a far more comprehensive version!)
(Eric Mc will be along soon to give a far more comprehensive version!)
I'm pretty sure you can charge the company interest?
Fantastic, thanks for your insights into this. I thought that private loan / directors loan route sounded the most sensible way to go. Can't see why anyone in my situation would put up with the charges and general faffery of a proper business loan when this is so easily available!
Thanks again
Thanks again
Not had the need to do this before but I'm pretty sure taking out a personal loan and putting this in a close company of which you have more than a 5% holding carries the benefit of the interest being an allowable deduction on your self assessment return also.
I'm sure Eric will confirm whether I'm right or wrong.
I'm sure Eric will confirm whether I'm right or wrong.
Absolutely correct. If you borrow personally to invest in your own company, then the interest you are charged by the lender and which YOU are paying out of your own personal funds, CAN be claimed for tax relief on your personal Self Assessment tax return.
If the company starts repaying the loan back to you, then the repayments of the capital element of the loan is a non-taxable event. In other words, the company claims no tax relief on the repayment and the individual does not declare the loan repayments received from the company as income.
However, if the individual is charging INTEREST to the company in respect of the loan repayments, then this is a taxable event and a number of procedures have to be followed -
The Company
The company is obliged to deduct tax at 20% on the interest amounts paid to the individual.
The company is obliged to pay the tax deducted to the Revenue on a calendar quarter basis using a specific form called a CT61(Z).
The company can, of course, claim these interest charges as a legitimate business expense.
The Individual
The individual is obliged to declare the interest received from the company on his Self Assessment tax return. Like normal bank interset received, the individual pays no further tax on this interest unless he is a Higher Rate Taxpayer.
If the company starts repaying the loan back to you, then the repayments of the capital element of the loan is a non-taxable event. In other words, the company claims no tax relief on the repayment and the individual does not declare the loan repayments received from the company as income.
However, if the individual is charging INTEREST to the company in respect of the loan repayments, then this is a taxable event and a number of procedures have to be followed -
The Company
The company is obliged to deduct tax at 20% on the interest amounts paid to the individual.
The company is obliged to pay the tax deducted to the Revenue on a calendar quarter basis using a specific form called a CT61(Z).
The company can, of course, claim these interest charges as a legitimate business expense.
The Individual
The individual is obliged to declare the interest received from the company on his Self Assessment tax return. Like normal bank interset received, the individual pays no further tax on this interest unless he is a Higher Rate Taxpayer.
(no offence) Hope this isn't seen as a hijack but can I just seeking clarification and confirm that I'm reading this correctly:
If as a director of a limited company I take out a personal loan in order to inject funds into said limited company I can in effect claim the repayments back from my self assesment tax return.
If this is true and I had not done this for 2 years can I retrospectively claim the repayments back or have I missed my chance?
Many thanks in advance.
If as a director of a limited company I take out a personal loan in order to inject funds into said limited company I can in effect claim the repayments back from my self assesment tax return.
If this is true and I had not done this for 2 years can I retrospectively claim the repayments back or have I missed my chance?
Many thanks in advance.
Not the repayments in full - only the interest charged on the loan in the respective tax years.
And yes, get your claims in quicklyas possible as a "Repair" to your 2004/05 and 2005/06 tax returns with an explanatory letter setting out why the claim was originally omitted and what the loan was for. Along with the "repaired" return I would also submit a certificate of interest charged ny the bank/lender printed on the lender's official stationery for tax years 2004/05 and 2005/06 to substantiate the claims.
And yes, get your claims in quicklyas possible as a "Repair" to your 2004/05 and 2005/06 tax returns with an explanatory letter setting out why the claim was originally omitted and what the loan was for. Along with the "repaired" return I would also submit a certificate of interest charged ny the bank/lender printed on the lender's official stationery for tax years 2004/05 and 2005/06 to substantiate the claims.
Edited by Eric Mc on Wednesday 31st January 12:34
As the original question poster, may I once again say thanks to all who have contributed, I'm constantly surprised at the level of knowledge combined with a willingness to help found here.
I'm now off to get myself a nice cheap loan, two fingers to my business bank (no names but they used to sponsor the Stewart F1 team, and in fairness are otherwise OK) and their 11.9% APR!
I'm now off to get myself a nice cheap loan, two fingers to my business bank (no names but they used to sponsor the Stewart F1 team, and in fairness are otherwise OK) and their 11.9% APR!
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