Loan for van to start a business

owensofi

I'm usually pretty clued up on personal finances, budgeting, debt Management etc and get asked for help by quite a few family and friends as a result. All has always worked out. But this area has stumped me a bit so perhaps need an "Insider" to help.

Partners brother is trying to set himself up in business. Partners dad is helping as did the same business for years but family cannot help financially.

He needs to needs to buy a van to carry out the work, with speciliast hydraulic platform, for about 10k.

He is still in full time employment but has business lined up for as soon as he can get moving so no problems there.

He is 22, lives at home, has a bit of money in the bank, a small loan for 8k but no Credit cards etc. Never been in any trouble with money, credit file all looks great, credit score is good. On electoral role etc etc. Only brings home about 950 a month but only has the loan and petrol as an outgoing so can clearly manage the 8k plus the 10k repayments, which would total £212 for the 10k and £135 for the 8k per month

However, I suggested he apply for a Tesco personal loan as I thought he stood a good chance of getting it.

We decided to do this now while he is employed and state circumstances as such as thought this would stand him a better cgance of acceptance.

He was refused.

I'm guessing it could be a number of factors such as age, poor depth in credit history, debt vs. income etc.

Just don't know what to advise now. Don't want to risk another refusal for credit and another footprint on his file but also don't want to pay 53% APR to a loan company that claims to offer bad credit customers as he doesn't have bad credit!

Bank won't touch him unitil he has business on his books for 6 months at least.

No family can help finanacially includeing taking out the loan for him or securing it on a house.

So needs finance for the van and it has to be in his name.

So any ideas where to go next?

Also any implications on getting a loan when employed the going self employed?

Thanks

paulwf

Most personal loans will specifically exclude business use. AFAIK you also can't put the interest from a personal loan down as a business expense which is a fairly significant chunk...more tax minded forum users may be able to clarify that though.

The loan should clearly be business based, either through a business bank loan or leasing. If the bank won't touch him until he is trading he either needs to go to another bank or he needs to strengthen his business plan.

He needs to start speaking to some business professionals who can point him in the right direction. If he is in England Business Link provide free start up courses and can also provide free advice over the phone. Local business bank managers will usually be available for an informal initial chat. An accountant would be a good place to start as well when it comes to loans on vehicles.

I know you have probably been brief to keep the issue clear OP but there is a lot more to funding a business than getting a loan for a vehicle and then off you go. Chances are this is where his business plan has fallen down. Any bank will want to see FULL start up costs and a five year month by month cash projection.

You will also need to consider the key issue for the bank which is security...leasing or loans will want a property to secure the loan against unless you go down the EFG route. Will someone back him for this?

Lastly what is he doing to maximise his prospects? Can he pay his loan off at a faster rate? Could he hire the specialist equipment for a short period so he has something concrete to put in his business plan?

grey_lady

So 350 a month outgoings on loans, plus tax, insurance which for a 22 year old isn't going to be cheap, plus servicing costs, fuel, does he expect his income to significantly increase? It's just that I can see two thirds of that 950 a month disappearing straight away. A realistic budget and a business plan would be a good place to start, also thinking about buying the cheapest possible van, does he really need the lift on it?

owensofi

Well he will be leaving his current employment so the costs you have mentioned above will become business costs. We are applying for the loan now because he is employed so it is easier to get a loan when employed than starting up your own business and self employed.

Sorry yes he definately needs the lift too.

grey_lady

If tesco turned him down it could well be because his current (950 a month) income doesnt support (in their eyes) 18k of loans, that's what 1.5 times his gross annual salary?

He could go for a higher apr from somewhere but to be honest unless his new self employed income is higher than his current earnings then it looks like he will struggle to pay himself even minimum wage once you account for his business outgoings.

The sensible thing to do might be for him to get a second job now and pay off his existing loan / save up enough to buy a van - as cheaply as possible and come up with a business plan / forecast to see if the new venture looks profitable.

Colincbayley

Why buy the van?

New venture, low overheads/income to start = Rent the vehicle.

Once he has a small trading history behind him and he knows that his business model works, then buy a van.

I did a quick google on the subject the other week, depending on the size/type of vehicle he wants, then approx hire cost is £65 per week, based on a LDV Maxus High Roof. ( I dare say that there will be VAT and costs to add to it ) But it will also save him on Insurance and maintenance costs.

I wish him all the luck in the world in his business.

paulwf

owensofi wrote: »

Well he will be leaving his current employment so the costs you have mentioned above will become business costs.

As before I think you'll have trouble putting them as business costs if it is a personal loan, especially the interest element. There are ways, but speak to an accountant before getting the loan...if you are serious about doing business with them the initial chat is usually free.

Mwesty

£65 a week from where?

Colincbayley

Mwesty wrote: »

£65 a week from where?

Only an example. I have no affiliation with this firm, do not know if what they say is correct, Just picked it up via google.

It does look very cheap though.
http://www.boxby.co.uk/flexible-van-finance-for-couriers.asp

owensofi

Thanks for your thoroughness, is nice

Unfortunately its not a van for couriering we need, its a "cherry picker". It has spcialised hydraulic access lift built onto the back for working at heigh stuff like fixing lamp posts etc.

Thanks anyway.

paulwf

owensofi wrote: »

Thanks for your thoroughness, is nice

Unfortunately its not a van for couriering we need, its a "cherry picker". It has spcialised hydraulic access lift built onto the back for working at heigh stuff like fixing lamp posts etc.

Thanks anyway.

Do you need anything highly specific or is it a normal van with cherry picker? I know nothing about them but a quick look on Ebay suggests £1K for something knackered and £3K will get you something to get you up and running for the first year.

Sure it would be nice to get something top of the range but most successful business people have had to "wing it" at first. Apologies if I've got your equipment needs wrong, I'm just mentioning it because time and again I've seen threads on this forum where people say they can't afford to start up when used business equipment can be had for next to nothing (which is also why lenders are reluctant to lend against new kit).