to think that anyone who secures a business loan on their family house is taking too big a risk

[needanotherperspective]

ok- let me clarify a little here.

Am talking about a situation eg, where a husband co-erces / persuades his wife that this is a good idea - or maybe didn't discuss it with her at all.

Surely the person taking out the loan (and I speak only for them, or anyone who has willingly agreed with them) is or should be aware of the risk that they could lose their home? Not meaning to sound heartless here - of course it is an awful situation for the family - but surely no-one should put their family at such risk without being fully aware of the risks and taking whatever consequences should they arise (i.e. if the business fails). Surely there might be a 50 / 50 chance that the business would fail and that their family would be homeless?

Obviously each to their own, and no problem with anyone wanting to take that risk. But surely something wrong with taking the risk and then being in complete shock when you are at risk of losing your house? That's the risk! Same as gambling.

AIBU?

My Dad did this back in the late 80's. We lost our lovely house.

I think a lot of people did this when loans were cheap, or people thought it would never come to that, or they were trying to do the best for their family. I am really sorry for your Dad and what he must have gone through (and esp for your mother and you and any siblings of course) - I just wouldn't be able to get into that mindset? How can you not be aware of the risk?

Did he regret it? I really do feel quite sad now. For all of his aspirations and (I assume) trying to do the best by his family, but in the wrong way.

It's not something I would do.

Too much of a risk.

But then plenty of people who are multimillionaires and very successful now have lost their homes, and more, in the early days.

The successful ones are those who learn from their experiences and refuse to stay down.

I definitely wouldn't want to take that risk. But then I'll never be a millionaire either!

I would advise/caution against it.

Having seen family members lose their home then I wouldnt do it.

IMO you need to match the loan to expenditure - an overdraft to buy inventory is okay, a mortgage to buy inventory is a disaster waiting to happen.

It was the only way to start a business up to the 80's, but it is not the only way now. Avoid!

There's a time in your life when it's ok to do this - DH and I sold our home and used the equity to start our business while lodging with my parents. We didn't have children at the time, and discussed the fact that we were young enough to start again if it went pear shaped. Wouldn't do it now.

DH and I think it's too big a risk and his business managed just fine.

But there will be someone along in a minute to tell you that it's the sign of a fabulous, swashbuckling entrepreneur and the only way to succeed.

Swashbuckling entrepreneur eh?

My dad did this and was very successful. While I'm happy with my life I made it clear to DH at the beginning of our relationship that I wasn't risk averse and had no desire for an ordinary life.

DH's family struggled to understand why I fought so hard to get our mortgage (not got a loan on it but we were basically turned down and I refused to let some upstart bank clerk get in the way of my dreams) and were stunned when I quit my good job during the recession but he rather likes my attitude. Life is for living.

My dad did this too, we lost our house late 80's, I had a roller coaster childhood financially, loads of cash or bugger all. Changed schools a lot, depending on finances.
I am VERY cautious (financially) consequently, however my youngest brother, mainly brought up in "good times" has quite a different attitude.
I would never ever risk our family home for a business, but we have just increased our mortgage to do a huge amount of building work - if we lose our jobs we're stuffed but we both understand the risks and talked them through fully. Eyes wide open is the main thing.

It isn't something i would do, we are mortgage free and no matter what happens out there (I mean if dh were to lose his job, if he were Ill etc) our home is safe.

My dh, i know at some stage wants to set up on his own, its something he often brings up, and I know it would make sense to break free from the company where he currently works. I've told him he can gobble our savings up if he wants to, and I will back him up, i am quite confident that he would do very well, but our home won't be involved.

forrest that's roughly what we did. DH started his company with our own money and small loans from our parents and a larger but still smallish loan from a very good friend.

Putting our home on the line was never an option. Now when I see good people's businesses failing through no fault of their own I'm even more pleased with our decision.

It pretty much destroyed my Dad tbh. He made a succession of bad business decisions that ultimately led to my parents splitting up, him having a breakdown then developing Altzheimers. I think that one decision ruined his life, and had repercussions that lasted a long, long time.
A cautionary tale indeed.

OP

Are you self-employed or involved in an owner managed company type business ?

Sometimes, the only options are personal guarantees or using any assets you have as security for a loan. This has only got worse as the recession drags on and banks have used the additional funding made available to them to bolster their own asset position at the same time making the restrictions on lending tougher and tougher.

This is why I admire the business people who make their own way, more often than not creating employment for others along the way, because I am fully aware of the risks they have to take in order to do this.

They are usually in shock that they cannot turn their business round, no matter how hard they have tried, not in shock that they have to lose their home.

Co-owners of property would all need to sign up to lenders charges placed on it as security for borrowings. If a business person fraudulently signed on behalf of theri spouse, that is a completely different matter and desperate people do desperate things.

When my DH started his own business we never took a loan out, never remorgaged, didn't rely on credit cards.
I made it perfectly clear he was not securing anything on the house, it was my home and staying that way.
We struggled, we didn't have a holiday for five years, I worked full time and all available overtime, sometimes seven days a week.
Eight years down the line, the business is successful, we have a car we paid cash for, we have no mortgage and I have given up work.

Gawd it sounds like a terrible idea. I am v risk averse with dosh but blimey gambling on the family home in the middle of a recession sounds like a bad idea.

Also what whoknows said - if the house is co-owned then surely both need to agree to a loan and if one doesn't want it they can veto it.

Hooray for you SPO104 that's brilliant! Well done to you and DH

The reality for many setting up businesses is this is pretty much the only way to raise a capital injection.
Certainly everyone I know who has a seriously successful business had to do this, or somehting equally risky at some point.

Sometimes it pays off and sometimes it doesn't. Some people are built to withstand the risk some are not.

totally agree with wordfactory. we run a business from home and the only way to do this is by business loan where the interest rates are always higher than those on an ordinary mortgage. yes there is a risk but when you take out any sort of loan like an ordinary mortgage you risk losing your house if you go long term sick, one partner dies, you get made redundant etc etc. Of course i would prefer not to have any debt at all but it is up to the individuals involved jointly to decide what risks they are and are not prepared to take. personally i think it is less risky to take a loan based on my own business skills to make it succeed rather than rely on a mortgage which relies on someone elses business skills to ensure that they pay me so i can pay it.

I suppose that if both partners / husband and wife (or similar set-up) agreed between themselves, with full knowledge of the potential risks, then that is fine, as long as if you do lose your home as a result, you can't really complain too much (of course everyone can complain and be upset!) - but I mean can't be 'shocked' at the outcome - it was always part of the risk package.

What upsets me is when people (or one side of a partnership / marriage) go into such an arrangement (a) without fully informing said other side in relationship of full risks and (b) are in shock when the house is repossessed. Of course it is very sad, but if you are a risk-taker, and may potentially reap great rewards from taking the risk, then you also have to take the downside on the chin.

Right?

I think you do really have to look at the alternatives. When DH was looking at becoming an electrician there were an awful lot of franchise schemes around which could get you trained, kit you out with workwear, tools, stock and a van all for around £30,000. Seems like a bargain except that you dont need a van, inventory, extensive workwear etc etc.

What these schemes are trying to do is get you to buy an off-the-shelf business. The temptation is to remortgage the house then off you go. We have seen a few of these come and go while DH has been in business.

I run my own business and it employs my husband too.

I think there's a great difference in securing borrowing on a home for a business that is an unproven proposition and one that is growing to satisfy demand for its products / services and can show a strong track record of growth.

As others have mentioned, it's very difficult to borrow significantly large amounts of money without some security for the banks. the directors' houses are the first thing the banks think of.

I totally appreciate that it sounds too risky and that no one should do it but if I didn't, I wouldn't have a business or a home or employ 9 people and feed their kids etc etc.

If it goes wrong, it goes wrong but our standard of living is far higher than when we worked for other people and so it seems right at the moment.

I don't come from a business owning family and my father has always worried about it and the risk it puts on the stability of his grandchildren but it hasn't gone wrong yet and if it goes wrong it won't be a lack of trying from our point of view.

Basically it just depends how much risk you're comfortable taking.

My mum did this when I was a teenager. We lost our house and all our financial security because she let her boyfriend use the asset as collateral against loan to start his business. I have NEVER forgiven her for this stupidity and for putting her relationship ahead of our family unit. The boyfriend worked bloody hard to make the business a success but in the end a recession is a recession and loads of people went under. We ended up in rented places, moving house every couple of years. Hated it. Home life was insecure enough before all that started. And the boyfriend was gone, leaving us/her to pick up the pieces.
I would never do it. I agree with you OP, it's just wrong to do it.

What state would this country be in if no one started businesses and risked things though?

Just because it went wrong for some doesn't mean that no one should do it.

Also if my business goes wrong, I really can't see me finding a job that could support the mortgage so whether i borrow or not, the house will go. They aren't exactly selling round here!

I think the point is everyone needs to understand exactly what they are risking. If you are asked by your DP/DH to sign a charge over your house the bank will insist on you receiving independent legal advice before you sign it.
I've worked in a bank for many years and 15 years ago or so a wife (and it usually is/was) would come in and sign the form in front of the bank manager, the husband wasn't allowed in, so she could have it explained to her. if the Bank manager felt she didn't understand or wasn't absolutely sure, she had to go to a solicitor.
One lady came in, didn't seem to speak very much at all, just said yes, CLEARLY under the instructions of her husband. Trouble is the bit in the script where the manager says "would you like to receive further independent advice before you sign this?" she just nodded, and said Yes.... thank goodness.
Her husband was furious, I never forgot that, and never assume anyone understands anything they're signing now.

It depends. I left an X for this very reason. He wanted to use our home as security for a huge loan to launch a new business. Having already bailed him out to the tune of several thousand already, this was one step too far for me and our inability to compromise resulted in divorce. A couple of years later I did feel somewhat vindicated when the very same business folded with debts appraching £250,000, though I felt very sorry for him at the same time as he was basically a nice guy, just a bit hapless.

Now that I'm a mother, I am even more intractable about it. This is my children's security. I may change my mind once they're older and have left home (though I hope I'll be so sorted by then I won't even be considering it . ). The reason I wouldn't do it in the past was because I knew it was a crap idea rather than because I disagreed with it in principle IYSWIM.