Exceptional situation...any advice greatly appreciated!!

DKS_3

Hi all,

after being recommended this site by a friend, I have spent the morning thoroughly reading through the appropriate sections and have decided it may be best to explain my situation and see if any of you may be able to point me in the right direction or give some helpful advice...

I was recently working for an Audio Mastering company. The company was under bad management and headed towards administration. Working with the head engineer, I had offered to take control of the situation and get the company back on track. To cut a long story short, due to what I can only describe as absolute jealousy and stupidity they let me go and suspended the head engineer.

We are now setting up our own company to service the existing customers.

To get the company off the ground, we needed 100K capital which would be used for equipment, sound proofing and business start up. My partner raised 50K out of equity from his house. I am 24, not a homeowner and have bad credit due being out of employment for the past 3 months. We have a very strong business plan and are aiming to get to the bank to discuss business loans HOWEVER....Before we approach the bank, my business partner wants me to try and raise some of the cash personally so that I am sharing some of the personal risk, which is understandable.

Due to bad credit rating I was turned down from the bank for a personal loan so applied for another loan from an internet based company. I recieved a phone call to say that a loan for 20K had been approved but after reading about the company, I suddenly have the feeling that it was a scam.

Our GP margin is 84% we have orders waiting at start of business, and we have all of the equipment. We now only need 40K to get the business started. Due to the profit we are set to make in the first year, I do not have a problem with high interest loans as we are aiming to have all debt paid off within three years, but I don't want to keep applying and getting rejected incase it affects us getting a business loan from the bank. My business partner is pretty adamant on me raising some of the cash personally but am finding it pretty difficult.

I guess my main questions would be:
Should I wait to hear from the loans company before taking further action or applying for new loans?
What other help is available to new business start ups?
What are the main differences between business and personal loans?
Is it wise for me to get personal borrowing if the bank will lend for our business? and if not, how do i convince my partner to go for it without me taking personal loans out?
Can i take the risk of business borrowing personally so that my partner is not affected (effectively evening out the debt as he raised 50K from his house)?

I now just want to get the company up and running as quickly as possible, we have everything in place and just need the last bit of cash to get started. I am 110% commited to the company and am extremely confident that it will be a success as I have vast experience and knowledge of both our market and the wider industry. I'm willing to do what ever it takes and have considered the risks of high interest loans which are calculated risks and ones I am willing to take, but what do i do if i keep getting turned down from them?

Any help or advice would be greatly appreciated, for more info please get in touch, it's kind of a complicated situation so I may not have described it to as much detail as there is but if you can help point me in the right direction I can happily give you any more info you need, I have a full business plan that I can go through.

Thanks in advance

homer_j_3

If your figures are that strong, you may want to approach some of the bigger firms of accountants to see if they can get funding for you or look for local businessmen to invest.

Its all a bit dragons den but as you say - no income, no asset usually ends up with no loan.

Applying for lots of credit will harm your credit profile and I believe that you should take stock and maybe speak to a business adviser at your bank as a minimum.

lonestar1

Is your old employer still trading ? If so be sure theres no clauses in your old contracts preventing you from using the contacts youve gained through working for them. Also if you made a copy of your clients contact details that could be construed as theft or a breach of the DPA.

DKS_3

homer_j wrote: »

If your figures are that strong, you may want to approach some of the bigger firms of accountants to see if they can get funding for you or look for local businessmen to invest.

Its all a bit dragons den but as you say - no income, no asset usually ends up with no loan.

Applying for lots of credit will harm your credit profile and I believe that you should take stock and maybe speak to a business adviser at your bank as a minimum.

Thanks for your input.
That's certainly one of the next ports of call for sure, I'm just finding it difficult to get my partner to come along without me getting a personal loan first. Is it adviseable to see a business advisor at the bank with only one half of the partnership, I was advised to both go along.

We have assets that have been valued at 45K by an auctioneer so we shouldn't have a problem from the bank. It's the personal loan that is the problem. I don t want to hold the start up procedure from getting off the ground, but how can I convince my partner I am commited if I cannot get a personal loan? Tricky one ...!?

Snooze

I was once in a very similar situation and had the business waiting from the collapse of another company I used to work for but I couldn't afford one of the crucial bits of equipment to get started.

In the end I had a very frank discussion with what was to be my biggest client and told them the problems I was having. Within 30 minutes the whole thing was sorted out where they'd stump up the cash for the equipment if I'd do their first product run for free, no other ties. An agreement was drawn up and signed by both parties and onwards we went.

It certainly doesn't look very professional to your client(s) but when needs must and you've basically got punters waiting to throw money at you sometimes you need to let your pride take a hit and just get on with it.

I made sure the banks that had refused me the loan in the first place never saw my business once I was financially stable though :mad: . It's the old story - they're happy to give you an umbrella when it's sunny but take it away when it's raining.

Hope it works out.

Rob

Rafter

Only fair that you should take some of the risk, but without security of income, assets or an established business it will be very hard to raise significant cash unless you can find someone (parents/ relative/ business angel) to act as a guarantor or to provide some equity.

Hope things work out and if you do get an offer for £20k, read the small print, make sure you don't get screwed if you repay early but go for it if that is what you really need to get the business up and running. Make sure you know the risks though - if you default and end up having to go bankrupt, you won't be able to be a company director and you would be very unlikely to get a loan or mortgage for 6 years afterwards without paying through the nose.

R.

DKS_3

lonestar1 wrote: »

Is your old employer still trading ? If so be sure theres no clauses in your old contracts preventing you from using the contacts youve gained through working for them. Also if you made a copy of your clients contact details that could be construed as theft or a breach of the DPA.

They are still trading - By the skin of their teeth. I have not made copies of any of the clients I made at this company. My partner, who is the head engineer, has worked there for 20 years and was unfairly suspended without reason or cause for three months. His old contract has been cancelled and he is working there party time until we get this company up and running. They need to write a new contract for him in the meantime however they cannot afford the legal fees and by the time they do we are aiming to be up and running. We will make sure if a new contract comes in the meantime that the restraint of trade is lifted.

It is quite a grey area, many of his clients are HIS clients and not the company's. We have spent time looking into it, and have in black and white that because of the unfair suspension and how long it was, they can no longer enforce the restraint of trade as they have broken the contract, which is why they are drawing up a new one...

Incidentally, another engineer that was working there who saw how badly it was being managed and had exactly the same contract openly moved to another mastering company and took all of his clients with him, they didn't bat an eyelid!?

homer_j_3

DKS wrote: »

Thanks for your input.
That's certainly one of the next ports of call for sure, I'm just finding it difficult to get my partner to come along without me getting a personal loan first. Is it adviseable to see a business advisor at the bank with only one half of the partnership, I was advised to both go along.

We have assets that have been valued at 45K by an auctioneer so we shouldn't have a problem from the bank. It's the personal loan that is the problem. I don t want to hold the start up procedure from getting off the ground, but how can I convince my partner I am commited if I cannot get a personal loan? Tricky one ...!?

If you go for a business loan, you will need to be there as the bank will lend against business and the business is you and the other person.

What orders do you have? Have you started getting promises of business? Maybe you could go out and get a letter of commitment from these businesses of what they will do. As someone else as said, you may find someone willing to give you the cash on the basis of a freebie or a few freebies kind of thing.

Clearly your partner wants you to have something that will stop you walking as soon as it hits a rough patch and you need to explain that a personal loan would not be the measure of commitment that they believe it would be. It could be more harmful in the long run to the business if you need to draw more wages out of the business to pay for these loans.

lonestar1

DKS wrote: »

They are still trading - By the skin of their teeth. I have not made copies of any of the clients I made at this company. My partner, who is the head engineer, has worked there for 20 years and was unfairly suspended without reason or cause for three months. His old contract has been cancelled and he is working there party time until we get this company up and running. They need to write a new contract for him in the meantime however they cannot afford the legal fees and by the time they do we are aiming to be up and running. We will make sure if a new contract comes in the meantime that the restraint of trade is lifted.

It is quite a grey area, many of his clients are HIS clients and not the company's. We have spent time looking into it, and have in black and white that because of the unfair suspension and how long it was, they can no longer enforce the restraint of trade as they have broken the contract, which is why they are drawing up a new one...

Incidentally, another engineer that was working there who saw how badly it was being managed and had exactly the same contract openly moved to another mastering company and took all of his clients with him, they didn't bat an eyelid!?

Well if they let their leaving staff poach clients its no suprise they are about to go under. Good to hear youve checked everything out and are covered

Hope you get the cash sounds like youve thought things through so good luck to you:beer:

DKS_3

homer_j wrote: »

If you go for a business loan, you will need to be there as the bank will lend against business and the business is you and the other person.

What orders do you have? Have you started getting promises of business? Maybe you could go out and get a letter of commitment from these businesses of what they will do. As someone else as said, you may find someone willing to give you the cash on the basis of a freebie or a few freebies kind of thing.

Clearly your partner wants you to have something that will stop you walking as soon as it hits a rough patch and you need to explain that a personal loan would not be the measure of commitment that they believe it would be. It could be more harmful in the long run to the business if you need to draw more wages out of the business to pay for these loans.

Completely. We already have letters of intent to start trading once we are up and running. The problem is, one "order" so to speak on average from one customer would be £160 + VAT so to ask any of our customers for that type of money doesn't really work, I dont think even Ministry of Sound would put that up, we'd have to master their tracks for free for ever lol!

The main problem I think is convincing my partner of my commitment, which of course is completely understandable as he has just taken huge equity out of his house. I am confident the bank will lend for business as our plan is so strong and supported by our customers, but how can i convince him that I am financially committed to the company and any debt involved? I want to get to the bank asap but i also understand him wanting my financial commitment.

Is there anything in way of contracts we can do to come to an agreement where by any business debt is taken on by myself should anything bad happen so that he is left with his remortgage debt and I am left with the rest?

homer_j_3

It is difficult to say. You could get a contract to say anything that you want but you may be advised its a bad idea to take responsibility for the company debt.

You need to speak to a business adviser. Try business link to see if they can make any suggestions on a solution.

I would tell your partner to be that you a personal loan is not going to happen due to credit issues. You want both of you to speak to a business adviser to look at the ways you can set up the business and if there is any other options for you?.

What is stopping your partner doing it alone and you be given say a contract that you have a time frame of 12 months from the start up to purchase a share of the company. Could you work for him and then get a loan when you have some payslips and better income?