Business Loan

hairclip_2

Hi all, dunno if ive come to the right forum.
Myself and the wife are looking to get a business loan to open a Guest house. Can anyone explain to me how I could protect what personal financial assets I currently have from the bank in the event of the business (guest house) having to fold in the future!
Presently we own 2 properties (mortage on 1 paid in full) still owing about 50k on the other. Pensions and savings!
If I goto the trouble of starting the business up as a limited company will this insure that any debts it may acquire, will not be passed onto us in the event of it failing. I dont want to loose what weve worked so hard to achieve so far!

somethingcorporate

In theory, yes.

In reality, no. A bank would not advance money to brand new companies with no assets without any security. The businesses I work with (SMEs with a few million turnover) generally still require security against loans and if none exists in the business then the directors often have to secure against their own assets.

Banks need to protect their investment so you would need to stump up some serious collateral to get banks to loan against an unproven business.

Brock_and_Roll

I run a guest house myself amongst other things. Previously you might have been given a secured loan to the equivalent of 85% of the "bricks & mortar" value. Currently you would be lucky to get 65%.

There should not in theory however been any need to risk your other assets (i.e. if the LTV is low enough they will not require guarantees)

ILW

If you are not prepared to risk any of your own money, why would the bank want to risk theirs.

hairclip_2

So we could use one of the properties as security over the loan. And keep the other untouched!?

Brock_and_Roll

Just to be clear, are you planning to buy a 3rd property and then open it as a guest house? or are you planning to use one of your existing properties.

If it is the former, then as long as you can put in the 35% odd deposit (no mean task!), then the lender is likely to be happy with merely this property as security.

If it is the latter, then it depends whether it is the property with no mortgage or the one with a mortgage.

ps be aware that there are lots of sneaky little problems/costs to watch out for with guest houses - eg extremely expensive insurance, energy bills etc. Also you need to have a careful thought about any potential CGT liability.

hairclip_2

Its the former, were going to buy a 3rd property to run as a guest house/bnb.
So say for instance I was able to come up with a 35% odd deposit, (dunno, lotto win, etc??), and the bank was happy with this, and I set up the business as a limited company; then should we fall into financial difficulties, (heaven forbid) at a later date with the business, the only property that the bank can then reposess would be the guest house.
All my other assets should be safe?