Does personal debt ever impact business borrowing?

[bobbo mcbobbo]

I'm the director of my own Ltd company. No employees, just me on the payroll and 100% shareholder. I am thinking about taking out a sizeable personal loan. I am also considering taking out a business loan via the Recovery Loan Scheme.

Question: Does personal debt ever affect the ability to take out business loans? Not just with regards to the RLS (as this scheme has the rare feature of not requiring personal guarantees), but with business loans for director-operated businesses in general?

 

[Mark T Jones]

To varying degrees, yes it will.

Part of their affordability criteria will include assessing the personal situation of key persons.

 

[JEREMY HAWKE]

I am assuming that company borrowing will need a PG and this will involve a personal credit check !

 

[Mark T Jones]

I am assuming that company borrowing will need a PG and this will involve a personal credit check !

RLS doesn't require a PG, but normal affordability checks will involve some credit checking of the owners, since their finances are inextricably linked.

 

[WaveJumper]

My reading of this is if its you !00% of the business and thinking of taking out two separate loans (company / Business) are you not over stretching yourself seems like un due pressure to me especially in these times. as others before me have said if there's going to be a PG I am sure they going to do a check and if anything like trying to get a mortgage these days they will won't chapter and verse on your accounts / income.

 

[Financial-Modeller]

I guess it depends to an extent if either or both are secured on assets or unsecured.

Applying to borrow 5% of the value of unencumbered assets in each case will have a different outcome to adding to unsecured debt with no demonstrable assets.

 

[Mark T Jones]

I guess it depends to an extent if either or both are secured on assets or unsecured.

Applying to borrow 5% of the value of unencumbered assets in each case will have a different outcome to adding to unsecured debt with no demonstrable assets.

The broad point here is that some lenders dig and do research whilst others just use credit scores and algorithms.

In the latter case, multiple searches and recent credit are likely to trip the algo.

In the former, a good broker and/or lender will seek to understand and quantify what is happening. (that's me by the way - except I don't do loans)

 

[StuartBuck]

Lenders will mainly be focused on the health of your business, such as your growth, bank statements, and how fast you have repaid existing debt. However, personal credit issues such as CCJs will impact your ability to lend so prioritize cleaning up your credit before you apply.

 

[fisicx]

The broad point here is that some lenders dig and do research whilst others just use credit scores and algorithms.

My wife does business insurance and their checks always look at the creditworthiness of directors and associated persons. It's all part of open banking - your financial dealings are no longer private.

 

[Mark T Jones]

My wife does business insurance and their checks always look at the creditworthiness of directors and associated persons. It's all part of open banking - your financial dealings are no longer private.

Open banking is still very niche in the business lending sector - in fact only 2 of our lenders currently use it - and then quite tentatively.

I do expect it to grow as we move forward