Business loan & Debt?

redmel1621

Hi

My husband and I are extremely interested in setting up our own business, I won't go into any details yet or ask any other questions (and I have MANY questions) until I have cleared up initial funding.

Is it possible to obtain a business loan or grants from anywhere whilst we have bad debt...to clarify, we both have debt in our names (different types, some old some newish) but are not in a position to pay any of it back yet....


Is it a case of either, clear all debts first or fund our business entirely ourselves? The way I see it is, business loans would be secured on the business so we may have a chance of getting something, somewhere. I hope someone can give me a glimmer of hope:)

Mel xx

paulwf

Hi Mel,

I understand you don't want to give a full blown business plan but brief details about the type of business would be useful. It's impossible to give details unless we know a bit more, especially as you might realistically be looking to borrow £1,000 or £100,000. Also what level of debts do you already have, and are they bad debts or are you servicing them without any problems?

Unless you are taking on a commercial mortgage i.e. buying a commercial property I doubt you can secure against a business. Think about it...they will only call on the security if the business fails, and if a business fails it will be more or less worthless. Unlike with a house where you can sell it on for roughly what you pay for it you could lease business premises, sink a lot of money into it and find that you can't sell it even if it is showing a profit.

Premier_2

You'll almost certainly struggle.

You're setting up a business. If this is in your own name (self employed), then the business will belong to you both as will any debts ... and any eventual profits.

If it's a limited company, a new one, expect any creditor to require personal guarantees (so avoiding the limited liability of the company).

I suppose you might have the chance of selling shares in a limited company to raise the capital, but then you'll have to share any profits too.
At the moment, as the busness has no assets, it's worthless and so would the value of any shares be too, so probably not possible unless you start trading and develop a meaningful business plan.


Edit: To clarify, just becuse you have current debts won't affect your ability to borrow money (other than the total amount you want to borrow). Only if you have failed to keep up the agreed repayments will it adversely affect you.

redmel1621

It is bad debt...we currently have no income except tax credits and housing benefit...long story, but we aren't eligible for any JSA, yet...possibly!! Anyway we have barely enough money to meet living expenses at teh moment, however we do have a few assets we could sell to raise some investment money, so could probably scrape together about £2500, maybe slightly more:)

The business would involve either renting/leasing a shop/property..although ideally I would love to actually buy one at auction as I'm sure we could get one for far less and it would also be an immediate business asset? On the premises would be valuable computer equipment.....I need to get my husband to number crunch how much this would all cost, I am afraid I can't say too much as it is my husbands idea and he is worried someone will pinch his idea and do it before we get to do it:cool::p

We would be happy to do a lot of the work inside the business premises ourselves, although i am not sure if that is allowed with businesses or if you HAVE to get proper shop fitter in??

Like I say, I am more iinterested in whether we would be immediately refused on the basis that we have debt currently, that we can't even afford to pay back at the moment?? No point going any further with the idea if that is the case....

I imagine the set up costs would be somewhere in the region of 30000 to 50000 depending on refit costs/lease, rent, purchase of premises ...Obviously once we have costed EVERYTHING up we would know better, and would try to do our best to keep costs down as much as possible and I am sure I could do it for a fair bit less!.... Do you think that would be completely unrealistic to expect a bank (or someone else) to borrow us that much??

redmel1621

Premier wrote: »

Edit: To clarify, just becuse you have current debts won't affect your ability to borrow money (other than the total amount you want to borrow). Only if you have failed to keep up the agreed repayments will it adversely affect you.

I didn't really understand what you were saying about the self-employed/ltd business stuff:o

This is what I was worrying about...we are well behind with all our debts and can't see any quick way to resolve this...dh is currently looking for a job and is hoping to get something soon but this is not proving either easy or quick!!!

So basically, as we haven't been paying our debts we would most likely be refused a business loan:( Understandable though:o

paulwf

To be honest I don't think there's a way I sugar coat this so excuse my bluntness; your chance of getting funding is virtually nil.

For starters getting a basic business account is very difficult if you have bad debt (I presume you mean CCJ or debt management plan by that) let alone a bank loan.

Next a bank would generally want you to put in at least 1/3 of the total outlay and they would put in the rest, with you providing security independent from the business assets. The actual figures don't matter but you get the idea, you're looking more like £10K than £2.5K.

You also need to do as much groundwork as possible using your own funds before you draw down the loan. This is because business transactions are frustratingly slow (what should take a week takes months). So, you need money to do a survey, shop plans, any training courses and research etc etc. That way you can do all the foundation work and only draw the loan when the shop is about to open so you can generate revenue and start paying it off.

Borrowing money is also costly and eats massively into your profit margin. You're going to be servicing too much debt and you are relying too heavily on the project succeeding from day one. Ideally I would suggest clearing all debts then one of you having a stable reasonably paid job so the other one can go off and be the mad one trying out business ideas

Sorry to not have anything positive to say. Is there any way you can test out the idea on a small low cost scale and ramp it up from there?

Premier_2

redmel1621 wrote: »

...we currently have no income ...

As well as all the other issues, this is your greatest stumbling block.

How do you plan to repay any further loan if you have no income?

I know this is often a chicken & egg situation, i.e. you need the money to start the business to start to earn money.

But to a lender that is a huge risk. What if you start the business and it doesn't make money? What, as will be likely, you start the business and it doesn't make enough money in the short time until the lender will want the first repayment?

It is sometimes possible, but a lender will want detailed business plans with profit forcasts, cash flow forecasts, etc together with a confirmed order from an established business to lend against.

But even then, with the historical debt problems, and the current credit crunch, I doubt any responsible lender would lend to you, sorry.

redmel1621

Thank You..........


Paul - I did wonder how feasible it was, maybe we could try and go it alone on a smaller scale first off. We haven't yet got ccj's although it probably won't be long! I didn't realise we were expected to raise that much of the investment amount.....seems an awful lot and i'm surprised any businesses get set up if that is the case?

we may have to come up with a cunning plan;)

Premier - It is very much chicken and egg!! I also, obviously, greatly mis-understood how a business loan would work...

Thank you both for your help

xx

paulwf

redmel1621 wrote: »

I did wonder how feasible it was, maybe we could try and go it alone on a smaller scale first off. We haven't yet got ccj's although it probably won't be long! I didn't realise we were expected to raise that much of the investment amount.....seems an awful lot and i'm surprised any businesses get set up if that is the case?

Not that you'd want them anyway but do absolutely everything possible to avoid CCJ's and similar "nasties" on your credit file. There have been loads of threads on here about people struggling to get a basic bank account that doesn't involve even an overdraft.

The 1/3 personal investment is as much about showing the bank you are serious as about reducing their risk. If you are putting a significant amount of money on the line you're going to be a better proposition, sadly too many people these days are happy to take money without a solid business plan then go bankrupt if it doesn't work out.

To make a full time living in retail you generally have to start out with a reasonable amount of money. It does seem unfair that those with money generate more money but that's the way it is. A lot of people get a lucky break...a redundancy or an inheritance perhaps...the trick is to do all the groundwork so you are prepared if you ever get that break.

Vincenzo

redmel, as advised you would struggle to get sufficient credit for this venture. Have you conisdered finding an investor/partner?

redmel1621

paulwf wrote: »

Not that you'd want them anyway but do absolutely everything possible to avoid CCJ's and similar "nasties" on your credit file. There have been loads of threads on here about people struggling to get a basic bank account that doesn't involve even an overdraft.

The 1/3 personal investment is as much about showing the bank you are serious as about reducing their risk. If you are putting a significant amount of money on the line you're going to be a better proposition, sadly too many people these days are happy to take money without a solid business plan then go bankrupt if it doesn't work out.

To make a full time living in retail you generally have to start out with a reasonable amount of money. It does seem unfair that those with money generate more money but that's the way it is. A lot of people get a lucky break...a redundancy or an inheritance perhaps...the trick is to do all the groundwork so you are prepared if you ever get that break.

I will try to avoid anything worse than we have already;) Yes it does seem very unfair but we have always said/known that money goes to money:( Maybe I should start doing the lottery!!

Vincenzo wrote: »

redmel, as advised you would struggle to get sufficient credit for this venture. Have you conisdered finding an investor/partner?

Unfortunately we don't know anyone who has money, let alone spare money to invest. Unfortunately both coming from poor working class backgrounds, means we are destined to always stay there:(

Maybe one day....:cool:

Thanks again

xx