Loan to purchase company shares

Trish1968

I'm not sure if this is the best place to post this question. I have been given the opportunity to buy into my company as a shareholder/part owner. It would only be a 10% or 20% steak but to the value of either £50,000 or £100,000.

I have approached my existing mortgage supplier, Nationwide, but they don't do loans for investment purposes. I don't really know where to start with this or if I should be posting in the mortgage forum as I am gussing the only way to do this would be to borrow against my house.

Any initial pointers would be a real help.

Thanks in advance

Rafter

You won't get an unsecured loan.

If you are prepared to put your house at risk, and someone is prepared to extend your mortgage, it is then up to you what you do with the funds I guess. Are you sure the company is worth £500,000 and are you prepared to lose your stake if trading performance deteriorates?

R.

Trish1968

Thanks Rafter, not sure we do want to risk our home. At the moment we are madly overpaying our mortgage to get rid of it. Currently on schedule for 5 years tim. Loosing our investment is a scary thought but as we have been given the opportunity it seemed worth looking into before we dismissed it. IF, and its a big if, things go without any problems it is potentially a great offer. The company is worth 1 million, but we would be buying from one partner who is leaving for personal reasons. It is quite scary.

~Brock~

You need to speak to your bank about the subject of a business loan, which will have to be secured against your house (unless the bank would be interested enough to take a debenture against your share of the company as security) No-one will grant that kind of money unsecured

As a consumer, looking for a consumer type of loan facility, no lender will run the risk of you losing your investment due to poor trading and then being accused of lending irresponsibly.

As a business transaction, however, to someone who is in receipt of documented advice about the associatesd risks, things may well be different.

CLAPTON

I don't understand this.
you aren't risking your home only the moertgage repayments

you are very very well placed to know if its a good deal and it its not good enough to risk your own cash so whyever would anyone else risk their cash?

milan_ns

So you won't risk the house, but are willing to take a loan to complete the investment?

If the investment goes south and you can't pay, wouldn't the bank go after you house anyway?

bouncydog1

I would personally take a copy of the company's latest audited financial statements, together with management accounts to an experienced investor and ask them to look at the various ratios, to establish whether the Co is as good as you think.

It may very well be, but unless you are expert in these matters then sound financial advice is a must so that you go into any business dealings with your eyes wide open.

If the proposal is to buy an existing shareholder out of the business, do you know why he is leaving - is it a condition of his employment that on leaving he sells any stakeholding?

I think you need a lot more information before you look at options to raise the money - how do you know the Co is worth £1m?

Trish1968

Thanks for all your replies. All sound advise. I am assuming the company is worth 1mil as the partner who is leaving has asked 500,000 for his share. He says he is leaving as he hasn't been happy for a few years. I don't think I would ever know if this is the truth or not.

Milan_NS, you are right in what you say, these are things that have passed through my mind, don't really know of the legal bits.

As we are looking at before any professional advise and having spoken about it again this is what we think. We borrow £100,000 secured against the house. I do know what the dividend payments are and they, would cover the loan repayments each month so would not make anything there. I would draw an annual dividend payment but that is dependent on the company profits, which if it was this year would have been £14,400. The curernt existing director has indicated he would most likely be wanting to retire in about 5 years. At which point I think that would mean us too (not retire but sell our share of the company with him). We would still owe most of the £100k and for now if we assume the company would still be worth 1mill at that time our share of the sale would be £200k. We would pay off the £100k then I presume captital gains tax would have to be paid which would be £36k we would walk away with only 64k. Apart from the annual bonuses, lets say on an positive note would be 14.4k annually, we could make £136k. I am not sure if the risk of loosing eveything is worth that. Before I go down the route of paying for legal advise I just wanted to see if it would be worth persuing further. Perhaps not.

mabski

what bouncydog said.
I know a few lads from around here that bought a company between themselves off their old boss.
Not realising how much trouble the company was in they remortgaged their houses to pay for it. Then about 12 months later the company went bust leaving them all struggling to pay their mortgages.
Definately look into the books before you make your decision

PNPSUKNET

Have you ever seen dragons den? Worth looking up, as a director myself it is very risky. Never believe the partners valuation get a independant to value it. If the partner is fed up there are reasons behind this, and normaly not good ones.

Its better to pay an account £150 and find issues than invest and find huge ones

inmypocketnottheirs

The departing director/shareholder could be a rat leaving a sinking ship.