Funding of a start up

EMPG Registered Posts: 20 Dedicated contributor ? ? ?
Hi all,

Thinking of starting up on my own I am finding myself with many questions to be answered which will decide whether I start or not. This morning I have been in the bank with the situation of: starting on my own, full time.
Considering I do not have any savings and I am not sure I want to wait to have a reasonable amount of money I thought to fund my business via business loan. The loan will be required mainly to pay my wages and the running costs for a minimun number of months until the time I make enough money to not need outsourced finance (this I expect to be between 6 to 9 months).

The issue comes when I have been told that the bank do never provide 100% of business finance needed and I would need to provide between 30% to 40% which again takes me to the place of waiting and saving.
The other option that the bank mentioned was to ask for a personal loan instead.

Initially I dont see any problem on asking for a personal loan and using this to finance my own company, at the end of the day will be limited hence a separate entity of myself.

Is the situation as simple as I can see or are there any implications that I may be missing out of the equation? taking into consideration that I (the lender) will be employee in the company, are there any implications for me as an individual?



  • wbauk2002
    wbauk2002 Registered Posts: 110 ? ? ?
    The problem with a personal loan is its on you, and not the company, so if things don't go as planned your still responsible for the loan and keeping up the monthly payments, with my ltd company I got 100% of the 25k I wanted but had to sign a contract to say I was responsible for loan not the company

    There are lots of grants for startups but nowadays these don't cut it, I was speaking to someone that said 15 years ago he got a 6k startup grant but nowadays be lucky to get 600 in current climate, make sure it's a recession proof idea as its very hard for startups
  • EMPG
    EMPG Registered Posts: 20 Dedicated contributor ? ? ?
    Hi Wbauk, I have been looking in case I could get a start up grant but I cannot see anything, I am planning to go to the my local council and ask some questions, hoping I can find something helpful. My other option is leave my full time job but then find something part time and do my own part time until I make sure I can make enough on my own to go full tiem. But I can see myself having to risk with the personal loan, I will be meeting the bank again when I have my business plan done, will see what will happen.
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    It's highly unlikely a brand new limited company will get a loan without a director's personal guarantee, so you may as well just take the finance where you can get it as either way you will be personally liable for it.

    If you get a personal loan you can still get tax relief on the interest because it's for business.
  • Dcollins
    Dcollins Registered Posts: 179 ? ? ?
    It would be a good idea to consider how you would repay the loan if your business doesn't work out as planned. Would the bank extend its terms (perhaps unlikely these days), could you use a credit card (expensive), would you have to sell personal assets?

    I often see people underestimate costs of starting and running a business, and overestimating the level of income they expect to achieve. Banks see this happen too, which is why they prefer to minimise their risk.
  • PGM
    PGM Registered Posts: 1,954
    Threads like this always remind me of dragons den; if you mention on there that the investment is going to pay you own salary you're as good as out. They want to hear the investment is going to be used to generate income and that's going to pay your salary.

    And the current market is very risky, you can't blame banks for wanting borrowers to lower the risk by either having some capital to invest or for it to be a personal loan which they have more ways to claw back.
  • anniem
    anniem Registered Posts: 1,326
    I think your option of a part time job and starting up your own business makes more sense; but then I would because that's what I've done.

    I wanted the reassurance of a steady income whilst I dipped my toes in the water.

    As others have said it will cost you more than you think to get up and running, plus if you want to jump in without an income you will need to spend more than you anticipate on advertising.

    I think if you build your business more slowly your clients will arrive through word of mouth on your good service and be a little bit more of a known quantity. Perhaps that sounds daft, but I have found that works well for me. Maybe I wasn't ready to jump in at the deep end, but I didn't want it to go horribly wrong.

    It's now about 18 months since I got my MIP and I now feel ready to be more ambitious for my business, the problem I now have is that I really love my part-time job and don't want to give that up, plus I have children which are quite time consuming.

    Whatever you do needs to be right for you, but be prepared for it to take longer and be more expensive than you might imagine - unless you are looking to buy a block of fees.
    FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
  • EMPG
    EMPG Registered Posts: 20 Dedicated contributor ? ? ?
    Hi all, thank you for your comments, they all are indeed helpful.

    Anniem, your thoughts make sense and probably have opened my eyes, in the sense that I was thinking that it would take me between 6 to 9 months to be able to have the clients and offer the services enough to create a particualr amount of profits but I may have be too optimistic, as I am.
    With regards of your situation with the part time job is similar with my full time job, I would not want to completely get rid of it as in a long term I will be learning a lot about the type of companies that I would like to offer services to in the future and part of me thinks I will be stupid to disregard the job. Althought becoming a MIP has been my dream since I finished AAT 2 years ago and that fact is been haunting me every day, I like my current job but it does not fulfill me 100%, I really want to do it and I think as a MIP I can learn differnt thinks that I would not see working for someonelse.

    Decision taken: first, I will apply for MIP to ensure what kind of services I would be able to offer having the AAT support.
    Second, I may invest in the initial satart up costs as sofware (this should only be a small amount that I should be able to take from my savings), I will not go into marketing yet.
    Then I will try to offer basic services along with my long term job and then I will be able to reasses the situation.

    Gradually is probably the best.
  • anniem
    anniem Registered Posts: 1,326
    It might be an idea to check your employment contract; sometimes if you are working in practice there is a clause to stop you from setting up a practice in the same area.

    Good luck :thumbup:

    FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
  • stevo5678
    stevo5678 Registered Posts: 325
    anniem wrote: »
    It might be an idea to check your employment contract; sometimes if you are working in practice there is a clause to stop you from setting up a practice in the same area.

    Good luck :thumbup:


    Agreed, this is pretty standard. You should talk to your employer when you are ready to make the jump.
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