Help! Need Capital For Business But Have Debt!!

bikerchick_4

Hi Everyone,

Just seem to be stuck in a vicious circle:eek:

My husband and myself are both self-employed and for the past year been working long hours to start our business. I also, as well as helping my husband,work freelance as a designer to pay all the monthly bills.

We have a mortgage of 107,000 on house worth 150,000
Credit card debit of 13,000
overdrafts of 2,650
loan of 12000

All this debt in cards and overdrafts is from putting money into the business. and times when cashflow has been a problem.

We are basically dreading water, but, need to invest capital into our business to push it forward. At the moment we sell items and then it just goes back into paying bills for advertising etc. And what profit we do see it just pays house bills:mad:

We have asked our business bank to help with capital but they feel that what equity we do have in the house would not provide enough security for them so they advised to go down the personal loan route.

Our business is viable but needs that capital injection

I am just now stuck on what direction to go -

Do will go for increasing loan?
Do we pay off debt and wait - but in the mean time our business will suffer as we need to buy stock:mad:

If anyone could help us and release me from this mind splitting dilemma!!

Thanks

rog2

I know exactly what you mean - I have been there, but was unsuccesful in attracting any Capital Injection into my business - hence my current situation.
I know exactly how little help Banks and other Financial Institutions can be when you are struggling to keep in business - seems strange as they love to impose those, often illegal, charges on you, yet will fall over backwards to offer you meney when you don't need it. They make more money from a struggling business, yet they contine to knock you - Fairweather friends - give you an umbrella when the sun shines, and ask for it back at the first sign of rain.
I think that you may be better advised to look for a 'silent partner' or someone who is willing to buy into your business. Try talking to your local Chamber of Commerce or Federation of Small Businesses.

CLAPTON

most start up businesses fail in the first year or so and the most common reason is a lack of cash flow rather than lack of profit or customers.

do you have a business plan that shows the income /costs /profit and most importantly the cash flow for the business over the next 12 -24 months?

without seeing your business cash flow projections and your other income and living expenses its not really possible to make any recommendations.

rather than incur more debt and hence interest have you considered selling the house and renting and using the surplus to clear the debts and fund nusiness expansion.

tomstickland

Personally I'd advise against borrowing any more unless you have a business case that's very strong and it's only lack of cashflow that's the problem. You need data on your business and cash flow. Once you have data you can look at maximising your efficiency. It might look appealing to "release" equity from the house for example, but all you're really doing is borrowing more money.

bikerchick_4

Thanks both for replying to my thread -

We will definitely give the Chamber of commerce a try and see whether we can get a silent partner although I have always thought with something like that they would only be interested in the big boys - medium size businesses upwards with proven track record in business.

That is another thing we are missing when we want help from banks - they want 2-3 years books to show profit and loss etc.

We have done a business plan for 2 years to which we had help from an accountant. At the time of creating this we went for more of a larger start-up plan with a medium size unit and large stock.The accountant was very keen on our idea and felt it was very viable with good profit margins.

Alas, we did not have enough assets in the house and so we are going the slow route and trying desperately to build it up without capital but it is a never ending circle:mad:

Regards to selling our house to raise the capital - I am so reluctant to sell as this is our first house we have bought and scared incase we do sell that we won't be able to get back onto that dreaded property ladder again. Also, we bought it to do up and it is still in the process of being completed:eek:

If anyone has any more lightbulb moments on this I would be grateful.

The madbiker chick going even madder!!

tomstickland

I can sympathise with your position. But, looking on the positive, you're making enough to pay off the debts. This is why I think becoming obsessive about the details is the way to go at the moment. Become an expert at nursing it along at minimal cost.

The_Pink_Wafer

I'm clueless as to what you should do financial wise...

But perhaps you have a couple of options where the business is concerned that may help you out a little. It would depend on your suppliers, but it would be worth finding out if you can purchase stock on a "sale or return" basis. Basically, they provide you with your first batch of stock, which is invoiced out at "0" value, so you don't need to pay for it upfront. You then provide them with weekly/monthly records detailing what you sell and they will replenish your stock as you sell - this is when you are invoiced. Basically, the way it works is you only pay for what you sell. The other goods remain the property of the supplier.

You will also find that suppliers often have it written into the TOS that they offer a settlement discount for payments of invoices made with 7 days. This can really add up to quite a nice saving over the course of a year or so.

I know it's not advice or a solution for your problem, but it might help you a little in future.

CFC

Look Bikerchick, if you're scared that your business won't make enough money to enable you to buy another house if you sell this one then your gut instinct is telling you this is not necessarily a good risk.

If you don't feel confident enough to sell your house, do you feel confident enough to take on further debt?

As for a silent partner, you've not been trading for long and unless your business idea is really outstanding and very scalable, I can't see anyone wanting to take the risk, to be honest.

As for your accountant - accountants are all very well, but they don't make businesses happen. Without the customers, the best theoretical profit margin means not a fig. Don't give yourself heartburn that you couldn't do what he recommended - one day you might be glad you didn't.

As another poster mentioned, most businesses do fail. You need to believe in it, but you also need to have a 'risk assessment' position. What are you going to do if the worst happens and it doesn't go the way you want? I'd consider that before taking on more debt.

At the end of the day, there isn't a right or wrong answer to your question. There's only 'How much risk do I feel comfortable with?' and the answer to that question will determine your decision.

Rgc_3

Hi

I spent some time working for a management company which took over restaurants on behalf the bank to try to build them back up and sell as going concerns(dont pick on me i was there to work with the chefs and my attitude was to keep the chefs in a job...)....i could nt stomach the official receivers attitude to it all so i did nt hang around doing it for long

The main reason for failure as already said was insufficient cash flow or debt ratio too high which are both obviously interrelated but very rarely was it down to neglect etc.

Id think very carefully before increasing debt burden as pro rata you may find yourself with the same cashflow problems(more rev coming in but higher monthly outgoings on debt.

Im not into the idea of anyone selling there house unless its an absolute must for whatever reason as the property market is all over the place just now so it would be impossible to forecast when you can get back on the ladder.

Is there anyway of adjusting your current business model that allows you to release cash for growth but minimising the risk also and as a new business have you researched all your options on startup grants etc.

Rog has a good idea in bringing in a silent partner with the only concern being until the business picks up is his/her cut going to damage your income.

The solution is nt easy but maybe worth sitting down and reviewing your two year budget(much the same as an SOA on here)and see if the plan can be altered slightly

Very best of luck and i wish you both a prosperious business future

rog2

Rgc wrote:

Hi

Rog has a good idea in bringing in a silent partner with the only concern being until the business picks up is his/her cut going to damage your income.

Very best of luck and i wish you both a prosperious business future

I think that you would need to accept that any outside investor would be looking for a return on his investment. Hopefully the initial investment would be sufficient for the business to expand to the level that it will, comfortably support all principals.

A_Nice_Englishman

I agree with previous posters that you need more data about your business and its cashflow.

Take your original business plan and recalculate using actual figures instead of the estimated ones. What does that show? If it is strong enough to support the extra borrowing (bearing in mind that interest rates look set to rise) and you are happy with the additional risk then go ahead. If not, think about scaling down or even winding up the business.