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Original poster

Speculate to accumulate?

13 replies

FireMeetGasoline · 07/03/2022 23:54

Hey,

I'm posting this because I'm rather scared.

My dp is a qualified engineer. He earned a very good salary, but he hated working for someone else. Six months ago he started his own business. We had discussions and were in a position to allow him to do this. His happiness was, and is more important to me than a salary, and that still applies. He's been earning well, however, he needs tools to do what he wants. These come in the form of big machines. He's recently taken out a personal loan to buy a piece of machinery circa 19k. He's come home tonight talking about needing more, and I've just taken out a 15k loan to allow for this. There is no way I would even consider remortgaging. Both the loans are unsecured.

I know we are extremely lucky to be able to do this, but I'm still scared. I trust him 100% though. It means we are now 34k in debt for the business.

Is this usual when people start up on their own, to go into such debt?

It is a limited company and we are both directors. This isn't my source of income though and I mainly do the bookkeeping. I'm not an accountant btw, although we have one.

I suppose I'm just looking for advice from others who started their own business.

OP posts:
Sunseed · 08/03/2022 06:32

Does he have a business plan?
Has he approached commercial lenders with his business plan?

ivykaty44 · 08/03/2022 06:37

The debt will off set against the tax you pay, so look at it as a way of also saving money

It’s normal to have debt at the start of a business, but it does sound as if your dp is doing this as he goes along rather than making a plan

BarbaraofSeville · 08/03/2022 06:49

I don't fully understand limited companies but isn't a lot of the point of being limited is that the business can borrow money without risking your personal finances? IE the business takes out the loans, and repays them from business income, rather than personal unsecured debt? Plus if you finance the business with a personal loan, can you still offset the cost against tax? Perhaps it's worth talking to an accountant about this?

But yes, it would be normal to invest in the business by borrowing money when expensive equipment is needed for the business to grow.

Cocomarine · 08/03/2022 09:16

I’d be really fucking unimpressed that he quit a “very good salary” instead of using that to save for his business start up costs. Now he not only doesn’t have a business loan, but has a personal loan in your name.

There can be good reasons to use a loan, especially if you can offset the interest (can you - when it’s someone else’s personal loan?) and maybe this was the best way. But… I’m getting hits of a badly thought out business plan here. If this was a solid business plan you wouldn’t be posting your nerves here.

And are you basically a fake director for the tax fiddle, “book keeping” 🤔

Cocomarine · 08/03/2022 09:20

@BarbaraofSeville my husband has a business loan, but it’s still secured against his own home. Bank still needs security! I think limited liability means exactly that - the liability is limited but not removed. So if the business went bankrupt for example, his creditors would have to join the official list of creditors in their legally defined priority order. If he owned a sweet shop and owed the cash and carry last month’s bill, then they couldn’t come after his personal assets. But the big loan, the one that refitted the shop and launched the business - that business bank loan is secured on his house.

GodspeedJune · 08/03/2022 09:23

DP? You’re in a really precarious position taking out loans for him in your name.

Cocomarine · 08/03/2022 09:26

Answering my own question… yes you can claim personal loan interest as a tax deduction as long as certain conditions are met. The OP borrows from the bank, but then lends to the business. One of the conditions of her being able to loan to the business, is her having an interest in it. So no wonder he made you a director when it’s not your business 😉 All perfectly common though.

So the act of a personal loan isn’t a bad thing necessarily… but I still have alarm bells that he didn’t save from his very good salary, and you OP, who does the books, are nervous enough that you’re posting here and not getting your reassurance from the expert in your home.

Cocomarine · 08/03/2022 09:27

@GodspeedJune

DP? You’re in a really precarious position taking out loans for him in your name.
Good spot 🙈
Quitelikeit · 08/03/2022 09:35

Op I can understand why you are apprehensive but of course when starting up on your own you are going to need to work harder, longer and have initial financial difficulties outlays.

I think it’s ridiculous people pointing out that things are in your name! He’s your husband, you trust him and it’s a joint venture.

He obviously needs the equipment to expand into other areas and if his business is going to progress then of course you have to take the risk.

If people don’t take risks in life they will never learn and grow?!?

Original poster
FireMeetGasoline · 08/03/2022 16:18

Thank you all for taking the time to respond. I suppose my anxiety comes from a place of having debt, to not having it, to having it again.

No, there is no 'fiddle'. I do all the bookkeeping, CIS returns, invoices and receipts. You are right that we probably don't have a concrete business plan as such though.

Maybe he should've saved more before leaving his salaried job. That's done now. I suppose my thought process was that if this didn't work out, he would be able to go and get a job in his profession quite easily.

OP posts:
Hoppinggreen · 08/03/2022 16:27

I work in Mentoring small Businesses and if one of my Mentees told me they were planning on doing this I would advise them not to.
He should have approached lenders with a clear business plan for the business to borrow the money rather than do it yourselves.
I would also question that level of investment without a clear plan of how it will be repaid.
Not being married is a bit of a concern too really.
It is ok to take risks when starting a Business and in fact starting a business is always a risk but this doesn’t sound like something I would be comfortable with

Hoppinggreen · 08/03/2022 16:28

@BarbaraofSeville

I don't fully understand limited companies but isn't a lot of the point of being limited is that the business can borrow money without risking your personal finances? IE the business takes out the loans, and repays them from business income, rather than personal unsecured debt? Plus if you finance the business with a personal loan, can you still offset the cost against tax? Perhaps it's worth talking to an accountant about this?

But yes, it would be normal to invest in the business by borrowing money when expensive equipment is needed for the business to grow.

A lot of lenders now ask for a personal indemnity from Directors of Ltd companies
GodspeedJune · 08/03/2022 16:29

They aren’t married Quitelikeit so the OP has no protection in this situation if they split up. She’ll be fully liable for this huge debt.

OP, I don’t want to frighten you but if you can stop this loan you’ve just taken out, I would do that. He sounds quite fickle with money, leaving a well paid job without savings, taking out huge loans without a proper business plan. Then you’ve got only got his word that you’ll be repaid - how much would that count for if the relationship broke down?

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