Business Loans

Dd88

Hi,

I hope I am posting this in the right section - apologies if not.

I'm starting up a limited company virtually imminently due to my current employer winding the business down, and offering me a package to take some clients/computers/other stuff to help get me started. I've wanted to work for myself since starting work, and chose the career I'm in with the end goal of doing that.  

It's not really come about in the circumstances I would have hoped, and I'm taking some what of a leap of faith in doing it given the short notice opportunity - but we've all got to start somewhere.

Which brings me on to business loans - I'm thinking that I need a good 3 or 4 months to get on my feet a little bit, and I simply don't have the capital to support myself given the short term opportunity (as previously mentioned, I'll be acquiring clients from current employer, however revenue is made sporadically from these clients over the year - not a monthly basis).

To enable me to pay my mortgage and focus on getting the business up and running, is getting a start-up loan advisable for simply the overhead of salary to cover a few months, or not a good idea at all. 

I'm kind of thinking it's possibly the only option open to me to really give this a go.

Thanks

Sandtree

What legal structure are you going to have? Sole Trader? Limited Company?

A bank wont give you a business loan to pay your own salary. Banks are reluctant to give any new business a loan and in particular a limited company, if they do they'll want directors guarantees which more or less makes them personal loans (which you may find more accessible but still a challenge given you having to declare your change in circumstances).

Given you mention salary it would suggest a Limited Company in which case it;d be unusual for directors salaries to be any more than a pittance (unless this is enough for your mortgage etc) with most monies received as dividends but a loan generates a loss and so nothing to dividends out. It;d be a red flag to HMRC to pay yourself £30k PA for the first few months and then drop to the more regular £12k + Dividends 

Pennywise

Dd88 said:

To enable me to pay my mortgage and focus on getting the business up and running, is getting a start-up loan advisable for simply the overhead of salary to cover a few months, or not a good idea at all. 

You are very unlikely to get a business loan for the purpose of paying your own wages.  Banks usually want to see business plans etc and look for the loan to be used to buy equipment, stock etc to create business - they won't look favourably on a loan just to pay yourself!  Paying yourself a wage over, circa, £750 per month isn't wise either from a tax/nic point of view - the optimum is usually that level of wage plus dividends, but you can't pay dividends if the company hasn't made profits.

You'd be best (and it may be your only option) just taking a personal loan (or use credit cards) to tide you over for a few months until the company can start paying you wages and dividends.