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Start-up loan for a limited company

How would someone go about getting a loan for a start-up company with minimal risk?

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I have a potential client who has come to me and asked me how he would go about getting a small loan £1-5k for a start-up. He would be operating/trading via a ltd co, no company assets, and reluctant to provide a directors guarantee. Is this possible? I am thinking the solution is a high interest loan, as providers would see this as high risk, on the other side of the fence, the potential client is seeing this as a way of derisking the start-up...

 

Any advice would be awesome.

 

BR

 

Reading accountant

Replies (18)

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By Paul Crowley
22nd Oct 2021 13:55

Hopeless case
He could borrow, dissolve and keep the money as many times as he liked
If he is not prepared to take a tiny risk, what lender would?

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By DKB-Sheffield
22nd Oct 2021 14:04

If any lenders did offer this, I'd shudder to think what the interest rate and other charges would be!

Perhaps my answer to this client would be... "Why would a lender take a punt on your business success if you aren't willing to do so yourself (either financially or through director's indemnity/ guarantee)?"

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By bernard michael
22nd Oct 2021 14:14

Which leg will he offer as security ??

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Replying to bernard michael:
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By Tax Dragon
22nd Oct 2021 14:20

You'd take a whole leg? Kneecaps would be enough for many a small lender.

@OP, your guy should apply to Dragon's Den. Just for the comedy of it.

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By David Ex
22nd Oct 2021 14:39

If you take the client on, I think you’d be wise to get paid upfront. If he’s messing about to scrape together such a small amount, what’s the plan to pay your fees?

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By Hugo Fair
22nd Oct 2021 14:59

For such a 'small' amount without guarantees, there's not going to be any finance institution prepared to get their barge-pole out of storage (at any interest level).
Your client should possibly be looking for various 'start-up grants' (depending on location, type of business, age of client, etc) ... or maybe try one of the crowd-funding platforms (especially if the business will provide products attractive to consumers).
Either way - doesn't sound like client can afford your professional services!

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By sarahg
22nd Oct 2021 16:23

Why is the director not willing to guarantee the loan? This is a big red flag

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Replying to sarahg:
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By David Ex
22nd Oct 2021 16:35

sarahg wrote:

Why is the director not willing to guarantee the loan? This is a big red flag

Indeed! Wants to buy a lottery ticket using someone else’s money.

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By Leywood
22nd Oct 2021 16:55

Same Q as Sarah.

Make sure you get paid in advance.

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Melchett
By thestudyman
23rd Oct 2021 09:10

If prospect is struggling for a loan that small, then you have to question their ability to pay your fees.

I'm surprised they have not gone down the family/friends route.

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Replying to thestudyman:
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By memyself-eye
24th Oct 2021 15:57

Quite right, bleed the relatives first!

My son (well, one of them - bless) did just that with the loan of mom and dad.

Now, 6 years later he's.......

.......actually doing quite well (festival catering) - £100k in the bank and finally left home.

My advice? lend him/her the cash yourself, you won't regret it....

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paddle steamer
By DJKL
25th Oct 2021 10:05

Get him/her to go away , work harder at their day job (or take on a second job) and save up the cash needed to lend to the company for it to get going.

(saving, these days anyway, seems at times to be a forgotten skill )

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Replying to DJKL:
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By Paul Crowley
25th Oct 2021 10:40

Covid was the big savings opportunity for both the self-employed and furloughed employees
Not allowed out, no pubs clubs or entertainment
No restaurants
No car fuel costs
No train travel
No shopping for nonessentials

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Replying to Paul Crowley:
paddle steamer
By DJKL
25th Oct 2021 11:15

It is only savings if not subsequently spent, that is the tricky bit, the ability to not treat it as mere temporary delayed gratification- how much will still be "saved" five years from now?

My daughter saves in the sense of, they are visiting New York next year and she puts money away every month, but really that is not saving, saving is stuffing money away in one's twenties and never touching it. (A bit like our Nationwide deposit account, started in the 1980s and still there in case one day they cease to be a mutual, or the savings products we started in the 80s which are still plodding along- one of the reasons I like pensions (if HR), the money gets locked in in case one was to become tempted.)

I appreciate your point re not spending during Covid lockdowns , we are currently more awash with cash than we would normally be (and that is even after Son's delayed wedding reception just over a week ago), but the funds will only really be saved once they get dumped into an ISA never to be spent. (the dividends will be, though)

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Replying to DJKL:
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By Hugo Fair
25th Oct 2021 11:56

"It is only savings if not subsequently spent" ... an interesting perspective (and even more pedantic than me - which is a convoluted form of praise)!

So do such savings retain your imprimatur when, even though not spent, they are used as collateral against which similar amounts are borrowed ... a favourite ploy I believe of people like Branson and Philip Green, who are shy of risking savings?

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Replying to Hugo Fair:
paddle steamer
By DJKL
25th Oct 2021 12:45

Personally I would not so do but my late father used to, he lodged shares with his bank and they lent him money, his theory being he earned more than he paid in interest. ( was not convinced by the time he was 80, I just thought it was an unnecessary complication)

I, on the other hand, aspired to be totally debt free and having finally got there I have no intention of ever taking on any debt ever again.

The problem with leverage is it is great on the way up but a [***] on the way down, however I am willing to consider the net asset position as savings.

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Replying to DJKL:
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By Tax Dragon
25th Oct 2021 13:16

You've given me an idea. All the OP needs is someone to take the risk out of the loan, then he'll find a lender.

I've got a grand. OP - tell your man (I assume it's a man) that, if he pays me £250 pa, I'll underwrite his debt for him (up to £1,000). I'll offer a no claims discount after a couple of years.

Dragon Insurance. There for you when your business goes up in smoke.

(@Lion... is there already a Dragon Insurance in Nepal or somewhere? Oh and I bet there are some rules and regulations I need to find out about. Dammit. I do hope we haven't become a more hostile place to genius ideas such as this since Lloyd's did it 350-odd years ago.)

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Replying to Tax Dragon:
paddle steamer
By DJKL
25th Oct 2021 13:27

The catch with going back in time to deal with these sorts of situations is that these days there is little room in a modern house to hold the children taken as collateral for the deal and you have to feed the blighters, fish fingers, chips etc ( probably now get told kids don't eat these things nowadays)

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