Personal loan to fund a business

Jon_B_2

Hi,

Advice please.

Immediate family member would like some assistance buying a business via us taking out a personal loan which would be paid back as normal.

Business they are buying seems reasonably well performing. I personally wouldn't be involved in the business and would continue my usual job. The loan is only £7,500 and the monthly repayments more than comfortable to pay even if their business fell on hard times.

Is taking a personal loan for this purpose doable and/or legal? Anything I should be wary of (apart from investing in a family project which seems like a completely basket case idea).

Thanks,

Jon

marcarm

Why can't they take out the loan themselves?

Jon_B_2

marcarm wrote: »

Why can't they take out the loan themselves?

They took a sabbatical from well paid jobs nearly ago, they are funding most of the purchase from savings, but obviously won't be able to get a loan unemployed.

enthusiasticsaver

Technically they should get a business loan which is usually more expensive and requires accounts to be submitted.

If they cannot pay it back you know you will have to so are you ok with that?

david39

This forum is littered with distress stories by people who have funded or acted as guarantor for relative's who needed loans because the relative could not get one themselves.
The only way to decide whether to go ahead with this is to ask yourself, ""Would I give them this money as a gift?"
If the answer is Yes, then go ahead, treat it in your own mind as a gift, and look on each repayment as a bonus.
If the answer is No, don't do it because if the business fails you will have lost a lot of money and probably have started a family feud.

glennstar

Counter some advice herein you are free to take a loan (assuming the Lender will oblige) and spend the money as you see fit. There is nothing to say you have to have a business loan, etc.

Notwithstanding david39's good/valid comments about the inability of your family to pay back (i.e. the business fails, etc) I would also consider the possibility of them not wanting to pay you back. To this end I suggest you either ensure a shareholding in the business, which will give you the benefit of growth if the business succeeds but possibly also taking out a charge or 'mortgage' against the business. These have a special classification, are easily established and provide you with significant assurances without needing control of the business... as having a shareholding gives you no such assurances.

Jon_B_2

david39 wrote: »

This forum is littered with distress stories by people who have funded or acted as guarantor for relative's who needed loans because the relative could not get one themselves.
The only way to decide whether to go ahead with this is to ask yourself, ""Would I give them this money as a gift?"
If the answer is Yes, then go ahead, treat it in your own mind as a gift, and look on each repayment as a bonus.
If the answer is No, don't do it because if the business fails you will have lost a lot of money and probably have started a family feud.

Thanks for the advice everybody.

My thoughts are exactly the same as you have illustrated. I have the money in savings, and I would be happy for it to be a gift so not an issue there as we are a very close family. The only reason I'm not using the savings is because my wife is on maternity leave at the moment. If the business fails and the family couldn't pay us back - I'd be comfortable paying the monthly repayment.

So I guess that I have sort of answered my own question. I will look into taking a shareholding though. The business itself is already established and making good money with potential for growth so I had already considered a shareholding.

Thanks,

Jon

glentoran99

Jon_B wrote: »

Thanks for the advice everybody.

My thoughts are exactly the same as you have illustrated. I have the money in savings, and I would be happy for it to be a gift so not an issue there as we are a very close family. The only reason I'm not using the savings is because my wife is on maternity leave at the moment. If the business fails and the family couldn't pay us back - I'd be comfortable paying the monthly repayment.

So I guess that I have sort of answered my own question. I will look into taking a shareholding though. The business itself is already established and making good money with potential for growth so I had already considered a shareholding.

Thanks,

Jon

I don't get this part, If you can comfortably afford the repayments on the loan could you not make the repayments to your savings as it were, Saving a whack of interest

SeanG79

I second that, take the money from savings, you earn the interest and pay it back into your savings.

Should repayments from the family member stop, there is nothing then stopping you taking a loan...

[Deleted User]

glennstar wrote: »

I would also consider the possibility of them not wanting to pay you back. To this end I suggest you either ensure a shareholding in the business, which will give you the benefit of growth if the business succeeds but possibly also taking out a charge or 'mortgage' against the business. .

I agree the sentiment but this also could create problems if the business fails.

If the business is not incorporated and the op takes a stake, presumably they will also be a partner. This would leave them jointly and severally liable for all of the debts that the business may run up if it fails, regardless of the level of the interest.

glentoran99

[Deleted User] wrote:

I agree the sentiment but this also could create problems if the business fails.

If the business is not incorporated and the op takes a stake, presumably they will also be a partner. This would leave them jointly and severally liable for all of the debts that the business may run up if it fails, regardless of the level of the interest.

Be foolish to set up a business like that these days