Does having a business loan affect ability to get a mortgage

littlecabbage

Hello,

I am thinking about starting up a business with my partner and another couple who are friends of ours. At the moment, we are in the extremely early stages of starting to research things so please forgive me if some of my questions are fairly basic. I have struggled to find the answers on the general internet - can anybody help?

My partner and I are currently renting a house - we have been home owners before, but had to sell our previous house for less than we paid for it (but were very keen to move to a particular area and saw no chance of the housing market starting to improve any time soon!). We want to buy a larger house than our previous one, in a slightly more expensive area, hence do not have the sort of deposit we would require and are currently saving to achieve that.

I have seen that it is possible to get unsecured business bank loans up to a certain level - Santander seem to be quoting up to £25,000 for example. Obviously, we currently have no property against which to secure a loan, and we want to use the money we have saved up so far as our house deposit. Does it seem likely to those of you with experience that we would be able to get such an unsecured loan (of course assuming that we could present a valid business plan to support our application)?

And if we did get a business loan without having to use our house deposit, would we then struggle to get a mortgage within the next couple of years due to having such a large debt already?

The couple we are planning to go into partnership with have some capital saved so would have less of an issue obtaining a loan, but obviously my partner and I need to contribute equally.

Thanks for any advice offered.

bni

I'm assuming you will be setting up a limited company as there are several of you. The limited company will become its own legal person and will be responsible for its own debts, as such there is virtually no chance of getting a loan for a new company without you personally guaranteeing it (and you having considerable assets or put up collateral) regardless of business plan.

If you have experience in the area of business or a proven track record with other businesses, you will be in a better situation in regards to how much security will be required. New businesses are high risk and banks are low risk lenders - as someone said on another thread, banks will only lend to those who can prove they don't need the money.

littlecabbage

Thanks bni,

Oh dear, perhaps we will have to decide whether to stay in rented accommodation a lot longer and use our house deposit as some of the capital.

Do you think it will help that the business we are planning to start is a veterinary practice, and that 3 of us are experienced vets? We just don't have experience of running our own company.

And will it also make a difference if we choose to buy an existing practice (i.e. with an established client base) rather than setting up from scratch?

Regarding the limited company, is that the best way to set things up? That sounds as though we would be trying to obtain joint finance, whereas we'd rather assumed that we would raise our own finance separately to contribute.

So who is able to take out these advertised unsecured business loans - is it only existing businesses?

bni

What do you need the money for? Is there a way to reduce the cash needed up front or to raise it through other means? I think you will end up having to risk some of your personal money to get the business off the ground - there is always risk in business. The key is doing your research and taking calculated risks.

You should take professional advice on which company structure would be most suitable for you, but I would imagine it either being a limited company or maybe a limited liability partnership.

It could be difficult for you to raise financing individually for a joint venture, as you couldn't for example take out a personal loan to fund a business and loan/finance for the business would need to taken out by the trading entity (but possibly with personal guarantees).

Taking on an established practice could change the lending situation if the company is in good standing, but then I would imagine the cost of buying the practice in the first place would be a lot more than the £25,000 loan you were originally asking about.