Business investment/pay off mortgage

Retired2014

Hello, my son’s five year fixed mortgage is up for renewal in August. He has enough savings to pay off £100k chunk, which will bring down repayments on portion of mortgage left - particularly as he’ll be moving to a higher rate of interest. Meanwhile he also has an opportunity to buy into the business where he works - also around £100k which will also give him a share of future profits in a couple of years. I wanted to gauge opinion on whether he should use savings to pay off the large chunk of mortgage and take out a business loan to finance buy in, or use the savings to invest in the business? 

Retired2014

I should have added my thoughts were interest on business loan would be tax deductible, so does that make taking a loan more advantageous?

pmartin86

Ah yes, Well, if its "UNDEFINED BUSINESS 01" then go ahead, but if its "UNDEFINED BUSINESS 02" its a terrible investment, also consider "UNDEFINED MORTGAGE 01" with the rate of "UNDEFINED" compared with stable income and expenses of "UNDEFINED" and future propects of "UNDEFINED".

HobgoblinBT

Your son would need to assess the business to determine whether it would be financially viable for him to purchase a share.  Experienced business bankers will be able to do this far better than your son. 

A cheeky way of assessing the viability of the business would be to approach the business’s bank for a loan to buy in.  Their credit application process will involve an analysis of whether the bank is prepared to lend the money.  If the answer is yes, consider using his own money or a combination of his own or the loan.  If the answer is no and the bank does not consider the loan viable, don’t buy into the business.

retiredbanker1

HobgoblinBT said:

Your son would need to assess the business to determine whether it would be financially viable for him to purchase a share.  Experienced business bankers will be able to do this far better than your son. 

A cheeky way of assessing the viability of the business would be to approach the business’s bank for a loan to buy in.  Their credit application process will involve an analysis of whether the bank is prepared to lend the money.  If the answer is yes, consider using his own money or a combination of his own or the loan.  If the answer is no and the bank does not consider the loan viable, don’t buy into the business.

Unfortunately these days experienced business bankers no longer exist - these days it is all about filling in forms i.e. computer says.
We have no knowledge of what the business is here - what will they do with the £100k? Will it go into cashflow or investment in machinery or software??

We cannot possibly advise here.

I would always go with the smell test - if it doesn't smell right - pay off the mortgage.