Is Using a Personal Loan to Fund a Business Legal?

[James[D]]

Quick hypothetical question; is getting a personal loan from a bank and using it to help fund a business allowed?

I assume once they have granted the loan and are happy you can meet the repayments its up to you what you do with the money?

Thanks.

 

[Ashley_Price]

I assume once they have granted the loan and are happy you can meet the repayments its up to you what you do with the money?

Not at all. If they find out you have lied to them about the purpose of the loan they may order you to repay it immediately.

Why do you need to take a personal loan, why not try and raise a business one?

If you would like further details about raising a commerical loan, I am happy to point you towards Benoy Commercial Finance. Paul Benoy is an excellent, friendly chap who will give you advice on the likeliness of you getting a loan and will do his best to help.

I used him when I needed a (admittedly small) loan to launch BananaOffice.

 

[Bikerdave]

In answer to your question yes it is allowed to use a personal loan to fund a business but it would not be a good idea to lie to the lender who will ask the purpose of the loan as the terms may well stipulate that the loan must only be used for the stated purpose. They may not find out but do you want to take the risk?

Lending to a business may well require a personal guarantee from you which is effectively the same as a personal loan.

Be careful from whom you borrow, start with the banks, deal directly with a Business Manager and if they won't give you a loan ask yourself why!

David

 

[James[D]]

Thanks for the fast replies.

It was mainly for the speed, as we need the money as soon as possible so we can start buying stock in March. Personal loans seem to be granted very quickly where as business loans take longer to review, I believe.

Additionally, two of the three partners are currently unemployed and in debt. Given the financial climate thought it would be more likely to granted if the other parnter whos in a secure job of £40,000+/year to get a personal loan.

If we told the bank that this is what its for then would that be ok?

 

[Bikerdave]

Hi James

Didn't realise it was you.

I borrowed a significant sum from the HSBC last Summer and the Business manager agreed at the meeting and I had the paperwork within a week.

I borrowed personally, not the limited company I set up, so even though its for the business its still a personal loan.

To give a bank/lender confidence you should have a good business plan, the better the plan, the better the manager can make up his/her mind.

In my opinion a good business plan is absolutely essential for the business to show in writing what the business is all about, where its going, how it will make profits and what the costs are etc.

With three partners it is more than essential, so you all know what you are getting into, where you are going, how long you reckon it will take and how much you might make in profits and how you will share it it out.

Don't cut corners to speed it the process, you increase risk unnecessarily


David

 

[KM-Tiger]

With three partners it is more than essential, so you all know what you are getting into, where you are going, how long you reckon it will take and how much you might make in profits and how you will share it it out.

And how you will share the losses, should they occur. We hope not, but they could, and it might not be the fault of any of you.

As regards the loan, there's the Roundhead approach and the Cavalier approach, take your choice, but the same applies: how will the repayments be maintained if the business is unable to?

 

[James[D]]

Many thanks for the helpful replies

 

[logicfusion]

So why not take out a new Credit Card (with a 18 month 0%) deal 3% charge for a cheque of money transfer to your personal account.

I get bombarded with these offers. The marjority of these happily boast I can use the money for whatever reason I want.

Will you get a business loan at a rate better than 0% for 18 months (with a 3% fee up front)?

Obviously, you need to have a decent personal credit rating to get some of these offers.

Suppose I want the money transfer said money to my as mother a cash gift? I can't help it if she decides to make a cash loan to my business afterwards.

Cheers
Al

 

[Tricky]

I wouldn't have started my first business if it wasn't for a couple of "Home improvement / Renovation Loans "
But if you tell porkies to your bank they might get upset.
My old accountant told me that claiming back the interest on a personal loan used for business use, was a bit of an issue though, because it is in your name, not the companies.

 

[Big Pete]

I wouldn't have started my first business if it wasn't for a couple of "Home improvement / Renovation Loans "
But if you tell porkies to your bank they might get upset.
My old accountant told me that claiming back the interest on a personal loan used for business use, was a bit of an issue though, because it is in your name, not the companies.

Not a problem, just Invoice the Company whatever interest rate you fancy

if its your own money and your loaning it to your own Company do as you feel . .

 

[Rainbow Chasers']

If the business is going to be a partnership,and not a limited company at first - then you (the partners) are personally liable for its' debts - so on that front it makes no difference. What is different, is the interest rate - personals are usually half that of business loans, especially new business which is high risk and ends up being intergalactic in rate!

We have started a business before on a personal loan, that way was actually suggested by the bank. I guess if you were to discuss it with them, they may let it go that way - but in this climate, they may not.

Depends what you are spending the money on I suppose! If it is something purely business, or if it is something that could be seen as personal. IE: If you were going to rent out diggers, and bought yourself a digger, that could be seen as a personal loan.