Preparing to start my own business....

SarahLou

I'm fast approaching the stage (next week!) whereby I'll be approaching the bank for a business loan.

Plan is to open a pet shop. Got my business plan sorted, got my cash flowchart sorted. My question for this board (as I'm going to post a few questions in the loans section of the forums too) is simply what people recommend with regards to going for a Limited company.

Pros, cons, thoughts, ideas, suggestions, etc.

I've ran very small business before from home (pet sitting and the likes) but never had a premises or anything near this scale so I've got zero clue about that side of things really so any help much appreciated on those lines.

Welshdebtor

Biggest pro to being Ltd is if anything goes wrong you are not liable for all the debts. You will only be liable for the shares you have, i.e one share at £1, would make you liable for £1.

Cons - have to file alot of paperwork to Companies House, and anyone who wishes to see your accounts etc can do so for a small fee. There is also the cost of registering a company. These though I believe, are small factors against the protection you get by being a limited company.

SarahLou

Thanks Welshdebtor - thats the exact pro I'm after - I'm approaching the bank manager next week and what I don't want to do is end up with a business loan that would mean our family home is put in jeopardy if it doesn't work out. How does that work with regards to a loan - say the only loan I can get was to secure it against the house, but then I still went for a Limited company - hows that work if it all goes horribly wrong? I presume the Ltd protection overrides the paperwork at the bank?

mizzbiz

SarahLou wrote: »

Thanks Welshdebtor - thats the exact pro I'm after - I'm approaching the bank manager next week and what I don't want to do is end up with a business loan that would mean our family home is put in jeopardy if it doesn't work out. How does that work with regards to a loan - say the only loan I can get was to secure it against the house, but then I still went for a Limited company - hows that work if it all goes horribly wrong? I presume the Ltd protection overrides the paperwork at the bank?

No, no, no. banks are wise now to businesses going limited to shirk their responsibilities. Even as a director these days you will be asked to give a personal guarantee for any business loan. The limited liability is a bonus, for example, if you were struggling to pay creditors or your business had managed to get a loan with a business assets rather than personal guarantee. But for a start up with no business assets, you are very unlikely to get it without personally guaranteeing the loan.

The main advantage of a ltd company you will see in the early days is in the way you pay yourself. Corp tax for small companies went back down to 20%, so if you split your income and dividends correctly you will pay only 20% on the whole of your income, rather than 20% tax plus national insurance at 12% on PAYE Class 1 or Class 2 @ £2.50 pw & class 4 @ £9% for self employed.

SarahLou

Thanks mizzbizz. Much appreciated!

madtrekker

Welshdebtor wrote: »

Biggest pro to being Ltd is if anything goes wrong you are not liable for all the debts. You will only be liable for the shares you have, i.e one share at £1, would make you liable for £1.

Not true. As a director of a Ltd company (we incorporated in 2007), the bank made me sign guarantees for any debts that may occur. I am no less liable from a financial point of view really than I was when we traded as a partnership.

Welshdebtor

madtrekker wrote: »

Not true. As a director of a Ltd company (we incorporated in 2007), the bank made me sign guarantees for any debts that may occur. I am no less liable from a financial point of view really than I was when we traded as a partnership.

I forgot to take the need for a bank loan into account

Mistral001

If you are not willing to take any personal risk in your business, then that sends out a bad message to any future investor like banks. It also sends out a very bad message to suppliers and other business people which you might want to do business with. Business still very much depends on trust between people.

pitkin2020

Mistral001 wrote: »

If you are not willing to take any personal risk in your business, then that sends out a bad message to any future investor like banks. It also sends out a very bad message to suppliers and other business people which you might want to do business with. Business still very much depends on trust between people.

Totally agree, too many people think they can go get a loan start a business up and all will be good if they don't loose there home or car when it goes tits up. Yet every other business and normal banking customers who are the ones penalised as the banks will want that money back one way or another!! If your not prepared to take a risk don't start a business go and get a job, if you are serious about your business you will do what ever is required to get it off the ground, you may have to sell your house/car and downsize/rent to get the funds if needed.

paulwf

SarahLou wrote: »

Thanks Welshdebtor - thats the exact pro I'm after - I'm approaching the bank manager next week and what I don't want to do is end up with a business loan that would mean our family home is put in jeopardy if it doesn't work out. How does that work with regards to a loan - say the only loan I can get was to secure it against the house, but then I still went for a Limited company - hows that work if it all goes horribly wrong? I presume the Ltd protection overrides the paperwork at the bank?

As others have pointed out you will be personally liable for the bank loan. It gets worse. MUCH worse. There is a 99% chance you will have to sign a personal guarantee for the lease. This means even if you closed the business and paid back the loan you'll have to keep paying the rent on the shop year after year until you can offload it.

Please don't take this the wrong way but in my opinion you should hold off approaching the bank until you have thought everything through. This is because you only have one shot and as it stands you are likely to stumble the moment they ask you even a basic question about the company structure. I can't see any hurry at all (banks have lent money for hundreds of years and will keep doing so for many more) so why not put back your meeting until you have talked to more people - specifically your accountant - and then arrange a meeting when you are 100% prepared?

paulwf

OP I've just seen your thread about loans and borrowing the downpayment from your parents. Just like they say about gambling, there is an adage in business that you shouldn't risk what you can't afford to lose. Think very carefully about this, you are staking your house and your parents money on this business and sadly a high proportion of new businesses fail. If losing that money will keep you awake at night is it worth the risk?