Raising finance without personal guarantee?

Discussion in 'Accounts & Finance' started by ShootfortheMoon, Aug 6, 2019.

  1. ShootfortheMoon

    ShootfortheMoon UKBF Newcomer Free Member

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    Good Morning All,

    I am looking to expand my business and will now be trading as a Ltd company (I have been a Sole Trader for 6 years). I have £8k in the pot at the moment to open a business bank account with, but in order to expand I've calculated I need around £20k.
    My question is, are there any lenders out there who would offer business finance given the fact I already have some capital, without a personal guarantee. I have every faith in my business as it's grown steadily over the last 6 years, but as I have a mortgage and 2 small children I simply do not want to put our home on the line if the worst happens at any point.

    Every company I look into, when loans, credit cards, credit line etc all seem to want a PG somewhere in the small print.

    Surely there is a way that companies can expand without directors having to risk their homes?

    Any help appreciated,
     
    Posted: Aug 6, 2019 By: ShootfortheMoon Member since: Aug 5, 2019
    #1
  2. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Ace Free Member

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    Presume its unsecured lending you're looking for? As opposed to secured against an asset that you're buying.

    No, you can't get unsecured lending without personal guarantee. The lender needs some kind of security before they give their money away. Especially with a new-ish start limited company.

    There is. Gradually.
     
    Posted: Aug 6, 2019 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #2
  3. Mr D

    Mr D UKBF Legend Free Member

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    Surely lenders can lend money without being certain they'll get it back?

    If you have faith in your ability to make the payments then a PG isn't a problem. However without one all a lender has to claim money from is the company - which may not have any money at the time the loan stops getting paid.

    A PG is only an issue for you if the company does not pay the debt. How likely is that?
    If too high a risk then don't get the loan.
     
    Posted: Aug 6, 2019 By: Mr D Member since: Feb 12, 2017
    #3
  4. ShootfortheMoon

    ShootfortheMoon UKBF Newcomer Free Member

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    Thanks. Could you elaborate please? Should I be looking at a loan of much less, then building things up more slowly before borrowing more? I guess as I've been working hard for 6 years I feel now is the time for the 'boom' but of course in the eyes of a lender, the Ltd company is brand new, so a risk.
     
    Posted: Aug 6, 2019 By: ShootfortheMoon Member since: Aug 5, 2019
    #4
  5. Ian J

    Ian J Factoring Specialist Full Member - Verified Business

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    Banks and finance companies tend to look at the worst possible scenario and they will take the view that whilst you may have £8,000 in the pot at the moment you could easily withdraw it
     
    Posted: Aug 6, 2019 By: Ian J Member since: Nov 6, 2004
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  6. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Ace Free Member

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    No I don't mean borrow less. If you're not willing to give a PG then you can't borrow at all.
    I mean bootstrap it like most other startups do. Because they can't get funds.

    Or if you believe in the business, get comfortable with giving a PG and get a startup loan. Your house is already at risk, because if you don't make any money and can't pay that mortgage of yours, then the bank will have it back anyway.
     
    Posted: Aug 6, 2019 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #6
  7. ShootfortheMoon

    ShootfortheMoon UKBF Newcomer Free Member

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    I see your point, but that's not strictly true as my Husband is employed full time and could manage the mortgage should my business fail.

    As I started my business from scratch with no financial help, and have managed to survive for 6 years, earn income, pay bills etc and build a little pot of capital I would have thought that a lender would look at that and see something positive in it - without needing me to sign over rights to my personal property if it doesn't work out that's all.
     
    Posted: Aug 6, 2019 By: ShootfortheMoon Member since: Aug 5, 2019
    #7
  8. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Ace Free Member

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    Totally understand that. In fact, I've managed to get funding for someone buying two machines (I think it was a digger and a tracked dumper), who had a new start LTD company but had a number of years trading in the same line of work but as a sole trader. With a bit of dialogue between me and the lender, they even priced it at a rate that would have only normally been available to a LTD co which had been going for more than 2 years.

    The difference here though, is that the client I have described was buying assets. The funding was secured against the machines themselves, so the lender had some security and if the company stopped paying, they could just come and collect those two machines. What you're looking at is unsecured debt. the riskiest debt of all. The lender needs to know they have some kind of recourse if the company stops paying.

    If you do offer a personal guarantee, there is no direct charge put over your house. Your home isn't even directly at risk. All the PG means is that if the limited company stops making the payments, you guarantee to make them instead. It just removes the "limited liability" element of a limited company. They're not going to immediately repossess your house. They just want to make sure someone is going to pay them.
     
    Posted: Aug 6, 2019 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #8
  9. ShootfortheMoon

    ShootfortheMoon UKBF Newcomer Free Member

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    Thanks Gordon and yes I accept that my house wouldn't be directly at risk - I guess it's just my biggest worry having kids...roof over their heads and all that.

    I'm obviously new to the idea of a Ltd company so have a lot to learn about the processes, liabilities involved and so on.

    At one point we looked into purchasing a (very) small unit/office for me to work from, which would be a company asset presumably, and if we did I'm guessing that could be used as security on any future lending, however I assume we wouldn't be able to move assets anywhere else once they had been used as security on a business loan? As lenders would need to know they could get their hands on them if my business failed?
     
    Posted: Aug 6, 2019 By: ShootfortheMoon Member since: Aug 5, 2019
    #9
  10. ShootfortheMoon

    ShootfortheMoon UKBF Newcomer Free Member

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    by "moved" I mean transferred to another Ltd company (my Husband is toying with a sideline in graphic design for which he'd need premises in the future), or sold....
     
    Posted: Aug 6, 2019 By: ShootfortheMoon Member since: Aug 5, 2019
    #10
  11. Mr D

    Mr D UKBF Legend Free Member

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    Yes you have done all that.
    The limited company has not.

    They still want to get their money back if the company goes under.
     
    Posted: Aug 6, 2019 By: Mr D Member since: Feb 12, 2017
    #11
  12. Paul Norman

    Paul Norman UKBF Ace Free Member

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    The simple answer is this.

    No. Not if you need to borrow money. Very few, if any, money lenders would be willing to take the absolute risk of lending you some money and never recovering it - which is the commercial reality. You wouldn't. I wouldn't.

    All the banks are asking is that you take the risk yourself. And a PG is the most common way of achieving that - unless you are buying assets, as in the example of the digger above.

    Remember that your Ltd company is a separate legal entity to yourself. It is 3 minutes old, and has no track record against which to base a lending decision. You, personally, have, which is why the bank want you to underwrite the loan.
     
    Posted: Aug 6, 2019 By: Paul Norman Member since: Apr 8, 2010
    #12
  13. Mr D

    Mr D UKBF Legend Free Member

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    Realistically for probably most of us, a PG is agreed and never used. Money is borrowed, used, paid off and that's it. No risk to us because we believe we can pay the money back and indeed do.

    Business fails, bank is not immediately saying we will take the house. What they want is repayment within a reasonable time that doesn't skip payments or require them to spend much money.

    Yes, businesses can be high risk and we all probably know a high percentage fail within a couple of years.
    However they are not your business and you know yourself what you can achieve.
     
    Posted: Aug 6, 2019 By: Mr D Member since: Feb 12, 2017
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  14. fisicx

    fisicx It's Major Clanger! Staff Member

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    What do you need that costs £20K? Could you get second-hand or rent? Could you expand a little bit and build up your savings then expand a little bit more? If your husband can pay the bills on his own can you save all your income until you have the 20K?

    If none of this is possible have you written a financial plan detailing how you will pay back the £20K?
     
    Posted: Aug 6, 2019 By: fisicx Member since: Sep 12, 2006
    #14
  15. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

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    The only way to borrow money without a guarantee is to convince lenders either that a guarantee is excessive security - based on past trading or security, or that it is inappropriate for you to guarantee.

    Neither of those seem top be the case here, so any lender is going to want a PG

    Ultimately, whilst your home is somewhat at risk, the reality is that you will almost certainly come to a sensible arrangement of repayments you can afford over a set period.
     
    Posted: Aug 6, 2019 By: Mark T Jones Member since: Nov 4, 2015
    #15
  16. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

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    You have had a successful few years and slowly built up a name and some spare money so well done

    You are now looking at two different approaches to the future 1, go ltd, 2, expand

    Perhaps you could explain why you feel the need to be limited and whats stopping you, and secondly why you cannot continue to grow for a few more years at a lower expansion rate than you would prefer, therefore not needing the loan and associated costs etc

    You did suggest looking for buying a small unit, could you extend the house or garden into a larger work place, log cabin type garden offices/ workshops often don't need planning approval

    Good luck and I would suggest grow organically and not on a loan
     
    Posted: Aug 6, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #16
  17. Financial-Modeller

    Financial-Modeller UKBF Regular Full Member

    333 90
    errm, it already is!

    The more constructive suggestion would be to borrow some of the equity in your house and use that to expand the business.
     
    Posted: Aug 6, 2019 By: Financial-Modeller Member since: Jul 3, 2012
    #17
  18. Maxwell83

    Maxwell83 UKBF Regular Free Member

    569 132
    There's a mismatch there.

    You KNOW your business and have almost every control over its success, and even you won't risk it!

    Its just not realistic to expect a lender who doesn't know you or your business to gamble with their money, when you won't put yourself on the line to guarantee the loan.
     
    Posted: Aug 6, 2019 By: Maxwell83 Member since: Aug 4, 2012
    #18
  19. Newchodge

    Newchodge UKBF Big Shot Free Member

    12,271 3,177
    Why Couldn't your husband's ltd company rent it from yours?
     
    Posted: Aug 6, 2019 By: Newchodge Member since: Nov 8, 2012
    #19
  20. The Byre

    The Byre UKBF Ace Free Member

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    Of course not - nobody is that stupid!

    What you are asking, is for someone who will not only give you the money, but also let you transfer your risks over to them. The risks are all yours and you get to keep them!

    As @Financial-Modeller stated, extend your mortgage - it's the cheapest and best way for a micro-business to get credit.

    If you are reluctant to sign a PG and you or your husband do want to extend the mortgage, then you very obviously do not have much (if any!) faith in your business.

    Running a business is not some silly game to be played on the side. We are not playing craps for tokens here! This isn't penny-a-point bridge at the W.I. I have had every faith in my business and for that reason, I put EVERY penny I had into my business. If it went pear-shaped, I would have lost everything and would have had to start from scratch.

    I sold up and started again in 2000 and put everything I had into that as well.

    And now I'm doing the same again! That's how the game is played - for real money. If you don't like them apples, please leave the table.
     
    Posted: Aug 6, 2019 By: The Byre Member since: Aug 13, 2013
    #20