Has anyone here started a business with a personal loan?

[Sacha]

I would really appreciate some real life stories of entrepreneurs starting their business with a personal loan. What did you tell the bank the money was for, how did you spend the money (transferred to a different account, cashed it out, etc.?) and did the bank ever become suspicious or didn't they care what you did with the money? Approximately how big was the loan for? Did you use the loan money to up your credibility with other financial institutions? And would anyone advise against it if it's my only option to start a business in the foreseeable future.

Sacha

 

[jamiecooper]

Hi Sacha,

Not really an answer to your question I'm afraid but it may be worth looking into peer to peer lending as an alternative to the banks. If you qualify for a bank loan you will likely qualify for a P2P loan too, and you wouldn't need to lie about the purpose of your loan. Check out Zopa, that's the big one at the moment.

Another positive, at least according to a guardian article last month, is that Peer-to-peer lenders offer the lowest personal loan rates.

 

[businessfunding]

Zopa doesn't currently lend to businesses, though they might lend to directors or proprietors for personal use, if they can establish payment records

The nature of peer-to-peer lending is that you ill be closely questioned on application (this can be quite invasive including people questioning your choice of, say vehicle or supplier)

In response to the Op, i know many people who have funded start-ups with credit cards and personal loans. As long as all goes well no one will question it.

If things go legal it could backfire!

 

[LuckySticksHarry]

I could tell you a story of people starting a business with a £10 note but then I would be missing out on the other 9 out of 10 start up businesses that went bankrupt - what works for you may not work for other people; use your judgement. Would you really use the information you find from someone elses experience to jump into a commitment like this?

 

[Gecko001]

I could tell you a story of people starting a business with a £10 note but then I would be missing out on the other 9 out of 10 start up businesses that went bankrupt - what works for you may not work for other people; use your judgement. Would you really use the information you find from someone elses experience to jump into a commitment like this?

Yes, not surprisingly those people who started a business with £10 tend to boast about it and also get plenty of media attention as well. They tell us I suppose what we want to hear. The other thousands we want to not hear.

But to answer the OP's question, I once got a personal loan from my bank for business purposes. They had no problems with it, but that was before the recession. The bank knew it was for businesses purpose in fact they even suggested it to me, but, as I say, that was before the recession.

 

[internetspaceships]

Kind of. I started my business on credit cards 16 years ago. Took me ten years to pay them off but regardless of the ridiculous amount of interest I paid over the years it's worth it.

Nobody else would lend me a penny but I had to do it to get where I wanted to be.

It was used for stock. I borrowed up to £60,000.

 

[Alan R Price]

There's nothing wrong with starting a business partly using borrowed money however the majority of businesses I see, as an insolvency practitioner, have little or no permanent capital. So it is important to save some money first and combine it in some way with funds from lenders or other investors.

I know that some people are "forced" into starting their own businesses without savings because of redundancy etc. but the fact is that using borrowed money increases the overheads and can lead to the business owner becoming over-committed personally. Sell some assets or trade down if necessary but keep the borrowing to a minimum.

 

[arcon5]

Not quite a personal loan, but I topped up my savings with 3x overdrafts;3x CCs and a commercial card about 2-3years ago. All personal facilities and all maintained for a shot period, until things took a turn for the worst and eventually led me to the doors of the county court to have my bankruptcy petition stamped by an official.

Would I do it again? Aye, certainly would. But now I have first hand experience on running a business and can learn from my mistakes.

But it's not just the personal borrowing that can cripple you, it's also the commitments you enter into during the course of business, primarily a commercial lease.

 

[Gecko001]

There's nothing wrong with starting a business partly using borrowed money however the majority of businesses I see, as an insolvency practitioner, have little or no permanent capital. So it is important to save some money first and combine it in some way with funds from lenders or other investors.

My accountant told me the same. He said that having enough capital is the most important part in business. I suppose he has seen the wreckage of those who have had not enough.

On the Radio Four programme a few weeks ago the woman who started the very successful Cambridge Satchel Company said that she did not borrow any money to start up and if I understood her properly she has never borrowed any money for the business. Not very uncommon I should think in fact it probably is the norm for most successful firms.

 

[businessfunding]

Sensible borrowing is app out application and planning

Unfortunately most of the 'start up loan' proposals I see are based on nothing more that a vague belief that if they get £10k their business will be better than if they start with their own £1k.

Whilst I agree with comments about capital, there is a lot of merit in an absolute shoestring start up.

To state the obvious, borrowing to acquire an income producing asset against a confirmed contract makes a lot more sense than borrowing 'just in case'

 

[Financial-Modeller]

It is ok to borrow as long as the worst case scenario will enable you to manage the borrowing, i.e. repay both the interest and capital as and when agreed.

I borrow to invest in things that I expect to generate a return e.g. a business, and pay cash for things that I know will depreciate e.g. cars etc.