Should I get a personal loan and give it to my business?
For some company directors who cannot secure a Business Loan, getting personal finance and putting it into the business might seem like a good idea. However, a partner of Ringrose Business Finance who specialises in giving Company Directors advice on financial adversity has given us the following information…
A Word of Caution
Unfortunately, it is a fact that a percentage of all businesses will enter into an insolvency.
Some of the reasons for this include:
- Their clients took too long to pay them.
- They had bad debts (clients not paying them at all)
- They did not have enough money to fund new business or trade until business picked up
But here is the issue:
Loaning your business personal money and going insolvent is covered under the Insolvency Act 1986. The major issue faced here is called “Preference”.
Picture this… You take a personal loan of £100k and put it into your business, you then repay the loan and think there is nothing wrong with doing so…
But then, through no fault of your own, the business goes bust and you are told that you have to find that £100k again to put back into your no longer trading business for the insolvency practitioners to decide who gets paid, instead of you.
It would be both heartbreaking and life changing but it could be avoided, please read on to find out how BEFORE putting any of your own money into your account instead of a bank or finance company loan…
What is Preference?
Our partner explained that, when an Insolvency Practitioner is appointed, one of the first things they look at is Directors Loan Accounts and Preferential Payments.
As you may have preferred yourself against other creditors, you could well be asked to repay the company the money you had used to repay yourself.
However, there is a way to loan your business personal funds and avoid this scenario at the same time. To avoid this…
Please note: If you are considering this to support your business through the Coronavirus crisis please read our Coronavirus Business Loans page and other related articles.