consolidate debt and launch business?

credit_questions1

Im a single mum with a stable job and a promotion this month in software account management. I've always been afraid of debt but have had to rely on an overdraft to get by for 3 years bringing up a child alone without support.

I used to run my own business and my parents over 5 years have invested around £1000 into a new website that I see as my potential for a steady second income with scope to become much more. We need another £3000 to finish it and launch the site fully.

I have spent around 2000 hours of my time to date creating the foundations of the business(artwork,design,research,development etc)

I have had a £2500 overdraft since university and have never paid it off. I remain permenantly in my overdraft. The interest is 18.5% and equals to around £30 per month. I also have £900 on a credit card which was interest free until this month when it goes up to 16.5%.

I am considering taking out a £7000 loan from my bank as the interest is lower (8.9%) for loans of a minimum of £7000. With that money I can pay off and wipe my overdraft and pay off my credit card. I would then be left with £3600 to spend on launching my new website.
Im just wondering whether you think this is the most sensible way to go about clearing my current high interest debt and borrowing to start my new business?

Thanks for your advice!

Emmzi

depends on your salary if you'll get a loan, and banks generally aren't keen on people living in overdraft.

And if you can live on wages - loan repayments until the business starts to produce an income.

have you approached business link or similar for seed capital investors in your area?

VSC

Personally I would clear my debts.

Also, depending on what kind of website you want £4000 total seems a hell of a lot.

I do web design & online marketing - would be happy to advise if you need.

Good luck!

goodz

I gather that sometimes some credit unions can be relatively cheap to borrow from, obviously, subject to acceptance and some criteria such as being with them for a while before you can borrow and such like. Might be worth looking into.

Would it also perhaps be worth applying for a credit card or two with lower interest rates. But people sometimes say not to apply for more than two at a time and then not again for a few weeks or months as that can sometimes add a mark to your credit file.

Have you considered registering a limited company and selling some shares to raise the money? Although you can use an agent to form a company they generally charge £50 to £200 and spin out the process for a week or three whereas you can do it yourself for £20 and speed it up a lot. I asked Companies House if it was acceptable for me to amend and then photocopy used Memorandum and Articles of Association from another company and they said sure so there's no need to spend any money on these either. So you can use an amended one or download one free off the net. Also, if you prefer, you can buy new ones for about a fiver each at legal stationers such as W H Smith and Oyez.

If doing a Ltd company then, obviously, read it up on the Companies House website, wikipedia, here at MSE and maybe ask some friends of friends who already do one what they'd suggest. There are some pros and cons and a bit to learn about it and tax issues. Whether or not it's more advantageous for you to go limited and incorporate as it's called, is what you'd need to assess and decide. You may decide that it's not suitable for you, sure. But for some people selling shares is sometimes a handy way of raising money.

Hope this helps.

geoffky

More debt is not your answer...it will just kick the can down the road..

Apples2

Bear in mind the headline rate loan is only usually offered to those with exceptional credit histories.
I hope you understand that they are simply inviting you to apply for a product where Interest rates start at 8.9% (but go much higher depending on your circumstances).

If you are living within an overdraft you may not be offered such a good rate. Worth considering.