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New Business - Business loan, Overdraft, Personal Loan or to use Equity

Hi,

Between me and my partner we need £90K to start a new business. We are putting £20K each from our savings into the business. Bank have seen our business plan and are willing to give us the rest £50K. They are willing to give us £25K business loan and the rest £25K as an overdraft. They are also looking for security in form of second charge on one of our houses. We have a fair amount of equity in our houses (around £180K each) and we have excellent credit ratings.

My question is what is the cheapest money that we can get? Shall we:

1) Get an unsecured loan for £25K each. 2) Draw £25K each against equity in our homes through our mortgage lenders. 3) Go with banks offer - they have not given us the rate yet. 4) Also like to know if we were to go with bank offer - is there a problem in having £25K in loan and £25K as overdraft instead of a loan of full £50K?

Any feedback greatly appreciated.

Thanks

J Mann

Reply to
jagemail
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(2) will undoubtedly be cheaper than (1).

(3) will undoubtedly be more expensive than (2), perhaps even than (1).

Yes, the problem lies in deciding which is cheaper. :-) With an overdraft, you only pay interst on the amount actually borrowed. If you were to take the whole amount as loan, and not actually spend it all, it would probably end up sitting in a current account earning virtually no interest, while you pay loan rate interest on it. On the other hand, the overdraft interest rate might be higher than the loan interest rate, so it rather depends on your projected debt profile.

It might be worth going for £40k each against your mortgages and a smaller overdraft of £10k. If the business folds with a business loan still outstanding, the banks would come after you personally anyway. This will be one of the conditions of the loan.

Reply to
Ronald Raygun

In message , snipped-for-privacy@gmail.com writes

It might be worth looking at getting flexible mortgages so you have a drawdown facility that you can draw on as needed.

Reply to
me

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