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?

I think it's important to stress that banks are not lending money to risky businesses. They are getting pressure from Central Government to lend but they are making damned sure that it is a decent lending proposition because the last thing the banks need is toxic debt and they can't expect house prices to keep rising to get them out of the trouble anymore.

I think though that we're all pretty much agreed that businesses in their very early stages are not businesses to risk an absolutely fortune on. they need to prove themselves before they are worth gambling your family's security on.

I just can't agree with the theory that they're unacceptable in all circumstances or else there'd be an awful lot more people unemployed in this country.

Watching adverts on TV and elsewhere there does seem to be an assumption that starting a business means that you have to start big, borrow and hit the ground running. This doesnt always have to be the case.

• do you need those big premises, the new van etc etc all on the first day?

Many businesses start really small and grow from there.

Agree gnome. I don't recognise that as a sensible business plan either.

I haven't really noticed that in adverts but I have seen it in editorial - both in papers and on TV.

It's wholly unrealistic and discourages steady people who would have a chance of making a go of a business while encouraging people who don't think things through and have a high risk of failure or at best a white-knuckle ride. Of course, many people deludedly think this is what business is about.

The standard of business reporting in newspapers is rubbish and written in too many instances by people who don't understand business and drifted into that sector rather than having a skill for it.

I can say that because I am reporter (not business) and in many cases you follow where there's an opening on a desk and make the best of it. Many reporters don't achieve anything other than an adequate command of their brief.

I loathe the Sunday Times Rich List because it pretends to be knowledgeable but is an arbitrary list of greed that doesn't give anything approaching an accurate portrayal of how people built up their businesses, how their businesses are run and sustained and where the money comes from.

What would be interesting would be a list of the rich people who aren't on it.

The success of any business is the ability to move with the times. We are employing fewer people now than at any time in the past 24 years (other than when we first started and it was just DH and me!), but we're surviving and our current employees are as secure as anyone can be in this climate, because our overheads are at rock bottom.

We took a risk and it worked out BUT we both understood the risk and had no dependents at the time.

It's certainly not easy now, although our market has been decimated as companies are not (understandably) spending money. Keep plodding on though .

Sometimes it doesn't seem to be a risk. If your business is going well but needs to expand... you have to borrow, most loans need security. If repayments seem affordable and will lead to increased profit I can completely understand why people take a calculated risk.

I actually do feel sorry for some people that have taken a reasonable gamble only for something completely unforeseen to scupper things.

Now isn't a great time to be leaving yourself open to losing everything though, but then, there's ALWAYS that risk.

I absolutely would never do this.

Banks try and coerce small business owners into putting up the family home as security as a standard policy in a way they never would with the Directors of a big business. Once they get you to sign the papers they never let go and have no compunction in calling in the loan and grabbing the house. To be frank, I would not trust a bank as far as I coudl throw it after seeing how they treated my father in the 1970s. He nearly lost his business and the family home when the bank just sent him a letter out of the blue and demanded the overdraft be repaid in one week. He was a farmer and you just can't liquidate stock that quickly - it takes 9 months to grow, harvest and sell a crop. The banks all did it together in the same week and thousands of farmers went under as a result. My father's business survived, just about, but it was crippled for years.

A family near us just lost their business and their home a few weeks ago. Bank called in the overdraft despite giving assurances that they were standing behind the business. Not the owners' fault, just a downturn in the economy, ran a perfectly good business and now they have lost everything.

TBH, if you put your house up as a security it makes it more likely a bank will call in the loan because there is something of value to seize. If there is no asset security banks are more likely to let the business trade through a downturn rather than accept a loss on their loan.

Not something I ever felt happy about doing for our business. I always thought it was safer to keep the business and the house separate. However, Alan Sugar in his latest book says "Why should the banks believe in your business if you dont believe in your own business" (well words to that effect). Luckily the business is doing well but I have dreams of Alan Sugars money.

"Why should the banks believe in your business if you dont believe in your own business"

Well yes... BUT.... bad luck can happen to anyone so keeping business and private assets separate and unencumbered is very wise.

I have a soft spot for Alan Sugar but he does talk a load of shit.

i must admit to feeling a little uncomfortable with the fact that despite giving my kids a very good life, and a nice home the vast majority of the UK population obviously believe that I'm an irresponsible parent.

Does it not matter that if I didn't do this (and indeed large numbers of other people didn't either) that many many other children would lose the roof over their heads as their parents wouldn't find work that could support their mortgages?

As an accountant I see people stake their homes as the norm now; as the banks withdraw lending to small businesses. Yes it is very risky. Reducing the risks with a good business plan,close monitoring etc. reduces risk.
I went through the last recession and didn't loose a single client; and neither have I lost one (yet) this time round. Having said that I try to talk people out of businesses that wont run/survive. I've turned away about 10 women in each of the last three years wanting to launch new "cup cake" businesses.

pootlepootle after weighing up all the options you are doing what you think is best and it's working for you. That's great.

However, please don't confuse this with performing a humanitarian act akin to donating a kidney.

my Accountant turns away farmers (as she doesn't specialise in it and it's quite different to the norm) and pubs. Pubs seem to be going bust too often.

I do often wonder what the hell the attraction in cup cakes is.

Believe me i have never considered that running my business is a humanitarian gesture. i am simply wondering where people will get jobs from if we don't have people who run small businesses and therefore need borrowing to support their cashflow. it is staggering how many people are employed in small business. Mine is no different to anyone else's.

LadyClarissa
Totally agree.
I have clients still paying off negative equity from the 1991 crash
and too many people think that the only way to start a business is to get a loan.

One of the best examples I can cite is a girl who at 29 newly single with 4 kids in a rented house decided to start making allergy free soaps for her kids and selling the extras on ebay.
She never had ANY external financing. Just huge amounts of gumption.
I think she's done rather well
www.thesoapycauldron.co.uk/
(Hi Sam TiP)

The bank has a charge on my home for my business development loan. This was a really calculated risk the business is doing well, but needed to grow. I don't regret it and will be doing it again this autumn.
It is all done with good sound advice from my lovely accountant.

pootlepootle I know about the number of people employed in small businesses. DH employs a number of people both full, part-time and as freelance workers.

But though he treats his employees very well, it as his business, run for our benefit.

pootlepootle what we seem to lack in the UK are the facilities to help small businesses to get started in a very small way. Many fledgling businesses start unable to support even one person as a full time job. Doesnt mean that these are bad ideas just that they need time to grow. The entrepreneur needs time to learn about his/her business. At this stage if necessary they need to be able to close without losing the family home.

If the business survives this stage and grows just a bit, enough to support the entrepreneur, the next big step is taking on staff. This is a huge step and one where the government could help an awful lot more.

As an example

My DH is an electrician, day to day he cannot employ another person (not enough work) however sometimes he will get a big project where he could really do with another pair of hands.

What would be really good is if he could go to the job centre and say 'I need a person for X days' they could then match him up with someone seeking work. The job centre could offer DH support to take on a short term employee (eg insurance, H&S etc). DH gets his person, person gets some work at normal labouring rates. Handled through the job centre, the person could get straight back onto benefits without a break.

How many other businesses are there which need the odd few days of assistance? I know there are temp agencies but these just dont seem to work for this type of situation.

You could also use the same approach in a domestic situation - moving house and need a couple of people to help? Want help to clear the garden? Rather than these being cash in hand you could go to the job centre and deal with it properly with agreed rates, insurance etc. The employer gets the work done, the the employee gets experience and no worries about being called a benefits scrounger.

Okay, I am probably being naive!

gnome that is an excellent idea but jobcentres won't do it, as I'm more than sure you know.

Some staff actually get quite affronted when asked to assist local employers and local jobseekers in this way while operating the Work Programme for big employers and the Govt.

I'm not blaming jobcentre staff; it's the system, though I do blame some of the more theatrically-offended of them for their outrage: 'What? That would be advertising! We couldn't do that!'

I don't have a problem with a Work Programme or youth work experience scheme in principle. But it should be closely targeted to the skills and abilities of those wanting to find work who cannot find it through no fault of their own. And if there is a job to be done people should be paid the minimum wage for the duration and employers helped to handle the tax and NI situations.

I think it would be very successful. But of course, it would be small and would require thought to match employer and employee.

Oh hang on, isn't that what employment agencies do in times of plentiful employment? It's a bit more difficult these days

Much easier to reduce unemployment figures by a large amount, not by providing meaningful employment and training, but by shuffling the register around and striking people off for not following rules that seem to be changing every day now.

I think you have hit the nail on the head it is in fact the governments which want the big theatrical gestures though.

They all (governments of all shades) want to make grand schemes which 'solve' the problem in a single stroke. So much easier than tediously actually trying to help both the individuals who want to get back into work but need help and the small businesses which want to provide work but need help.

And this is where we find ourselves back at the point of businesses borrowing too much, too soon. The only way my DH could take on staff permanently (the only alternative) is to quadruple or more the size of the business in a single stroke. This means premises, vans, inventory and a great big loan against the house - oh no I dont want one of those so DH fills my head full of dreams about how this is the chance of a lifetime. I sign on the dotted line.

I think that was where we came in!

DH won't borrow from the bank because they insist on your house as collateral. As morebeta said this makes it more likely they will seize the assets if they want to suddenly call in the loan. I don't know for sure, but I think he's probably right.

AS i said on this thread, or somewhere else, DH was lucky enough to get relatively small and reasonably-priced loans from our parents and from a client at his previous firm who liked DH and felt like doing some good.

It wasn't really that much - certainly not compared to other people who set up in the same business at the same time and spent recklessly on rent, fixtures, fittings etc. It's a business that's a bit 'sexy' so attracts people who think: 'I spend money on that. How hard could it be to run?'

Quite hard, like all businesses, it turns out. Even beyond people who know what they're doing and we know a few of those too.

I'm not sure what we'd have done without those private loans, though it was easier to borrow from the banks at that time so I suppose we'd have done that. That's why Alan Sugar annoys me. Perhaps he really does forget it was easier 45 years ago.

DH is forever railing about private equity firms who we're convinced simply dabble.They persuade people with money to invest that they know what they're doing. In reality most don't have a clue for what makes a business and instead concentrate on 'developing' existing brands.

There is no finance for anything small and boring. To my mind small and boring is good. You can always get big and exciting later.

In reality property sits behind almost all loans that banks make. Its the real reason why banks are not lending right now. In fact its the dirty little secret they will not admit to when Govt asks/implores them to make more loans to small business.

The fact is they don't want to lend if they haven't got some property as security. With falling commercial and residential property prices banks are being extremely cautious. They would far rather not lend at all or indeed just call in overdrafts etc if they can't get someone to pledge their property as security.

MoreBeta I suspect you're right but couldn't swear. It's not my area of expertise.

DH would probably agree with you but he's out making money right now. It's okay, I made mine this morning

It's one of my beefs about Alan Sugar and his prating about unrealistic young business people.

After success flogging car aerials and mediocre computers he put the money into property some time from the late '70s. It was a very good time. Of course it suits the Sugar mystique to say he produced something or other rather than being a property speculator. Maybe he's said it enough times that he believes it himself.

Bank loans on reasonable terms in order to build steady businesses that add value to the economy and society don't exist any more.

I don't understand why people are happy to condemn young people for wanting instant fame or something for nothing when that's been the growing model for 20-25 years.

People are being sold the idea that we all need to literally bet the farm in order to make it. And if you don't make it, well, that's life, loser. It makes me puke.

HI - OP here again - limitedperiodonly has hit the nail on the head here with People are being sold the idea that we all need to literally bet the farm in order to make it. And if you don't make it, well, that's life, loser.

What happened to starting a business from a market stall (didn't Tesco and several others start like that?) - start out small and see what works.. build it up, keep ploughing any profits back into the business. Why would anyone have to put their house up as collateral (if they didn't want to)? Apologies if I'm being naive here, but I am a firm believer in keeping the business and the family home separate - unless you have thought it through to its natural possible conclusion and have decided you are ok with that - in which case, fine - why not?

Depends on the type of business. If you can buy a bit of stock and sell it on a market stall, great. But some businesses need huge investments before starting - most manufacturing businesses for instance.