Company Director in need of a personal loan

dsa1980

Can anyone advise?
My husband is the director of our limited company, and has an income of around £6000 a year.
We however take in total (including this income) £13,200 net from the business annually.

When trying to apply for a £6000 loan today to pay off car finance (i.e. no increase in monthly payment, and no history of missed payments) he has been refused.

I am employed elsewhere and would apply, but already have 2 loans in my name, can anyone suggest a solution or been in this situation and worked it out?

Thanks

Fiddlestick

Your car finance is £6000.

You want to borrow an additional £6000 (with a view to paying off the first loan).

This is £12,000, or in other words 200% of the annual income.

Not going to happen.

Tixy

If the dividends are taken regularly and paid into his personal bank account as well as his salary then possibly his own bank might consider it. Maybe in branch if you explain its part salary and part dividends but they can see it all going into his account.
But that said even if they will take into account half the divis on top of the salary its still might not be enough to get a new £6k loan on top of what he already owes. And it will always be treated as additional debt in case you don't use it to pay off the existing debt.

BoGoF

As I said on your other thread this is the downside to 'tax planning' and unfortunately it's not always possible to have it both ways.

needingaccountability

Does he not have any money in the business he could borrow?

dsa1980

Thanks for responses, its soooo annoying that the new loan would be cheaper than his car finance, and we know we'll pay the original finance off, and can easily afford it.
I understand the banks' point of view, it just seems so unfair.

BoGoF

Some people may argue it's unfair that your husband pays less tax/NI than them for the same income but then again they may get a loan and your OH won't

dsa1980

If we were to find the money to pay off the finance (e.g. borrowing from family) would he be able to get a loan for £6k when he doesn't have existing £6k debt?

I was also considering trying to apply for a credit card with available credit of approx £3k, and we could then make up the other £3k. Would this be feasible?

dsa1980

People may feel like that, but if they had our insurance bill, business rates as well as council tax, our commercial rates for electricity, gas etc. and our commercial mortgage interest rates (as we live in our business premises) they would quickly realise that they were far better off than us. We still pay corporation tax on the 'extra' income we take - we're not dodging tax, and certainly not making a fortune at the expense of employed people.

Tixy

How long to go on the car finance? what APR is it at? what APR loan is he expecting to get? (taking into account that he may not get the representative APR).
You could, I guess, consider changing the way he is paid and start paying him a higher salary and no dividends. Obviously that will impact on the tax & NI he will pay and you would have to weigh up if it was worth doing given the saving he may be able to make if he could get a loan.

You'd probably need at least 3months at the higher amount of salary as its quite possible that he'll be asked for proof of his income if it more than doubles in such a short space of time compared to the previous applications (which will have been recorded on CIFAS).
And you'll need to make sure the business can sustain the higher salary being paid to him - as a guideline if he currently just has £6k personal debt and wants £6k more then he is probably going to need a salary of double that, so say £24k+.

Tixy

dsa1980 wrote: »

If we were to find the money to pay off the finance (e.g. borrowing from family) would he be able to get a loan for £6k when he doesn't have existing £6k debt?

I was also considering trying to apply for a credit card with available credit of approx £3k, and we could then make up the other £3k. Would this be feasible?

Unlikely - his income will still be £6k and he'll still be looking to borrow £6k. So any creditor is unlikely to consider that he'll be able to afford repayments from his guaranteed income. Usually lenders don't like to give you access to total credit of more than 50% of your income, but at such low salaries its likely to be much lower than 50% that you can borrow/get new credit for at the moment.