Business Loan for Personal Use?

[Loaner]

I see business loans tend to have lower interest rates and longer repayments options.

With that in mind, would it be possible to get a business loan via my LTD company, for personal use?

Is this possible?

If so, how would the tax work on that? Would the money be taxed as a dividend when taken out of the business bank account?

What about the monthly repayments? Are these taken from the personal bank account or business bank account?

If business account, are they a pre-tax expense of the business?

Any advice much appreciated!

Thanks

 

[Gordon - Commercial Finance]

would it be possible to get a business loan via my LTD company, for personal use?

No.

 

[AlanJ1]

No.

As above, and if you lie about it to gain the loan in the business and take the money out and found out about it I am sure you will default on the loan.

 

[Mr D]

Question - how would anyone else know what the money is used for?
If OP gets a £10k business loan from somewhere will they be examining his bank statements to see how the money was used? Have to provide receipts?
Not saying should or should not, but how does anyone else find out?

 

[Gordon - Commercial Finance]

Question - how would anyone else know what the money is used for?
If OP gets a £10k business loan from somewhere will they be examining his bank statements to see how the money was used? Have to provide receipts?
Not saying should or should not, but how does anyone else find out?

The measure of a man is in what he will do if he thinks he will get away with it!

In short, they might not ever find out, but they will on application ask what the funds are to be used for, and to lie at that point would be fraudulently obtaining funds - often results in jail time.

To the OP - you have perceived that rates are better for business loans than personal. In actual fact what you are observing is the differences in regulation on both products, and also in the rules on marketing the products.

In real life, the business loan that you can get will be at much the same rate as the personal loan you can get. Forget advertised rates - the rate you can actually achieve is based on risk.

 

[Mark T Jones]

I'm not sure why you see business loans as cheaper - from what I see, personal loans are advertised from 3% (taking on board Gordon's point around 'from')


Except for the dodgiest brokers, business loans tend to be promoted from 5%

 

[Gordon - Commercial Finance]

business loans tend to be promoted from 5%

Quoted from 5%, but no one ever seems to get accepted at that rate! The best client in the world at the moment probably 7%+ on an unsecured basis.

 

[Noah]

I don't see the financial logic behind this anyway. If OP's business can afford loan repayments anyway, why doesn't OP take the money out of the business through legitimate means?

Otherwise OP is burdening a barely-solvent business for personal benefit; this seems... irresponsible.

Strikes me that "I need the cash now" is not sufficient justification for the risk.

One of the golden rules of business : it's not YOUR money, it's THE BUSINESS' money; these are not mutually-interchangeable concepts.

 

[Mark T Jones]

Quoted from 5%, but no one ever seems to get accepted at that rate! The best client in the world at the moment probably 7%+ on an unsecured basis.

Very True

I'm no personal loan expert, but I believe the 'from' element is somewhat more reliable

 

[Financial-Modeller]

...to lie at that point would be fraudulently obtaining funds - often results in jail time...

Any evidence of that? Are our prisons really full of inmates who paid off a credit card and bought a holiday, having ticked the "house improvements" box on a loan application form?



I'm not condoning fraud, obviously.

Back to the OP, get a quote for a personal loan and a business loan. I would be very surprised if the business loan is less expensive pari passu, as Limited Liability introduces higher risk of default and less likely recovery of funds.

 

[Gordon - Commercial Finance]

Ok fair point all perhaps a little extreme but obtaining funds under false pretences is fraud. May be a hyperbole but sure that is allowed to reinforce a point?

 

[Socio South West]

A client of mine recently wanted to do some building work on his house. He spoke to his regular bank, but was pilloried despite a good account history going back 35 years, and was quoted 11% interest.... despite having a strong asset portfolio.

We also looked at the likes of Sainsbury and Tesco banks who offer much better rates than the diehard high street operations.

We got round it extremely economically by putting the expense of it on a well established credit card with a healthy limit and when the work was done transferred the balance on a 0% deal for a one off payment of £60 with three years to pay it off before he incurs any interest on it.

Stupidly enough the credit card he transferred to is a division of his original high street bank.... ?????

 

[Newchodge]

A client of mine recently wanted to do some building work on his house. He spoke to his regular bank, but was pilloried despite a good account history going back 35 years, and was quoted 11% interest.... despite having a strong asset portfolio.

We also looked at the likes of Sainsbury and Tesco banks who offer much better rates than the diehard high street operations.

We got round it extremely economically by putting the expense of it on a well established credit card with a healthy limit and when the work was done transferred the balance on a 0% deal for a one off payment of £60 with three years to pay it off before he incurs any interest on it.

Stupidly enough the credit card he transferred to is a division of his original high street bank.... ?????

Was the 0% credit card newly obtained for the purpose?

 

[stuartm1962]

Any evidence of that? Are our prisons really full of inmates who paid off a credit card and bought a holiday, having ticked the "house improvements" box on a loan application form?



I'm not condoning fraud, obviously.

Back to the OP, get a quote for a personal loan and a business loan. I would be very surprised if the business loan is less expensive pari passu, as Limited Liability introduces higher risk of default and less likely recovery of funds.

Assuming it's a limited Company that will "take out" the loan, you are ONLY an employee of that company and have no right to withdraw the money to use as you feel fit.

 

[UKSBD]

Do the banks even ask what the loan is for?
I'm often sent info from my bank saying the company can have a loan at anytime, with no mention of what the loan is for.

 

[WeddingsInWales]

You can always borrow money off your Ltd Company but quickly cometh the taxman who will tax you 25% on the money borrowed. I normally take a dividend annually from my business but when it does not make enough for my personal spending requirements the accountant has to treat any money I take out above what can be counted as dividend, as a loan, and 25% tax is paid. Over the 30 years or so I have been trading this has accumulated somewhat, though the balance owed has gone up and down. When I pay any of it back, I get the 25% tax back, as the tax is just there to discourage you taking money out in this way. Ideally it should make enough profit to pay enough dividend but life's not always like that!

 

[Noah]

You can always borrow money off your Ltd Company but quickly cometh the taxman who will tax you 25% on the money borrowed.

Well, not quite... it's complicated.

 

[WeddingsInWales]

It is, which is why I use an accountant. I was told I pay 25% but looks as if it may be more, still, the Chartered Accountants know what they're doing even if I do not watch the details. I just know sometimes there is not enough surplus to pay the required dividend so any top-up I require goes into the accounts more on the Directors Loan - my main focus is ensuring the business keeps going, accountants do the rest. I've never really taken a wage, just the dividend annually.

 

[Noah]

It is, which is why I use an accountant.

Indeed! Fortunately I discovered the wrinkles before it became expensive.

 

[Newchodge]

I've never really taken a wage

I assume you take enough wage to use your personal tax free allowance?