i have a new business opportunity which i expect to be very
profitable, however it will require an large investment which i or the
business has.
What are the advantages and disadvantages of obtaining a personally
loan for the company or obtaining on behalf of the company?

Hi realserious,

Here are several advantages (+) / disadvantages (-) to a loan on
behalf of the company:

+ The loan isn't secured against your personal assets. Therefore if
the company goes bust or can't repay the loan, the creditors can't
collect anything from you personally, just from the company's assets.
Your personal liability is limited.

- You might not be able to borrow as much if your company has no
assets, or pay a higher rate of interest. The lenders will want
collateral to secure the loan. If your company can offer no
collateral, the loan will be considered riskier, hence the amount you
can borrow and the rate of interest will be higher.



Here are the advantages (+) / disadvantages (-) to a personal loan:

+ You can borrow more, if you can secure the loan against your house,
and for a remortgage for instance, you will get a very good rate and a
decent amount of money.

+ You can offset the interest payments against your earnings,
therefore paying less income tax.

- You are personally liable for the loan. If your company goes bust,
the creditors can come after you. If the loan was secured against your
home, you can lose your home.


Please note that this cannot be qualified as professional advice, you
are always advised to talk to a independent financial advisor. Please
have a look at the list of links below.


I trust this answers your question, if you require any clarifications
or need anymore information please let me know through the 'Request
for Clarification' button, and I'll do my best to help.

Thanks.
endo


Links

Steps in availing a Personal Loan 
http://www.timesofmoney.com/personal_loan/jsp/ploan_tips.jsp

Independent Financial Advisers (IFA) - US
http://www.kellysearch.com/us-product-49913.html

Limited Liability Company
http://en.wikipedia.org/wiki/Llc


Search strategy:

independent financial advisor US
://www.google.com/search?q=independent+financial+advisor+US

loan questions personal company
://www.google.com/search?q=loan+questions+personal+company

---

Clarification of Answer by endo-ga on 14 Jan 2006 12:52 PST

Hi,

Just to add an advantage to a company loan:

An accounting loss can be generated meaning that you pay less tax. The
loan repayment can be deducted from the profits and loss may be
carried forward as a tax shield for next financial year.

Thanks.
endo

---

Request for Answer Clarification by realserious-ga on 15 Jan 2006 07:07 PST

would it be possible to get more clarfication and a bit more information.
thank you for your help so far

---

Clarification of Answer by endo-ga on 15 Jan 2006 11:05 PST

Hi,

Could you please be more specific about what information is unclear
and regarding which points you require clarification?

Thanks.
endo

---

Request for Answer Clarification by realserious-ga on 15 Jan 2006 13:52 PST

all of it please sorry if i'm any trouble.

---

Clarification of Answer by endo-ga on 15 Jan 2006 23:59 PST

Hi,

It's no trouble, I'll elaborate around 3pm EST, I have to leave for work now.

Thanks.
endo

---

Clarification of Answer by endo-ga on 16 Jan 2006 13:29 PST

Hi,

I'll go through the same points again with a bit more detail. Please
let me know if you have any trouble with specific points.

Here are several advantages (+) / disadvantages (-) to a loan on
behalf of the company:

+ The loan isn't secured against your personal assets. If you take out
a loan, the lender will want a guarantee to make sure that they will
get their money back. So usually they will give you a loan with you
putting something else foreward such as your house. Meaning that if
you can't repay the loan, they will take your house and sell it. If
you take out a loan for the company, it won't be secured against your
house, it would be against whatever the company owns. So if the
company can't repay the loan, then you won't lose your house, the
company will lose its assets, such as building, computers, etc.

+ An accounting loss can be generated meaning that you pay less tax. The
loan repayment can be deducted from the profits. You have to repay
interest and capital on a loan, because of that spend, you can say
that the company is making less profits or losing money, therefore
paying less taxes. Because the company pays tax on what it earns and
if it earns less on paper, it will pay less tax.

- You might not be able to borrow as much if your company has no
assets, or pay a higher rate of interest. As explained in the first
point, if the lender cannot get a guarantee that they will recuperate
their money, either by you being able to prove sufficient income for
the company, or put some assets against the loan, they will generally
not lend you much or at a higher interest rate.


Here are the advantages (+) / disadvantages (-) to a personal loan:

+ You can borrow more, if you can secure the loan against your house.
Again, this is the same topic. If you can get a mortgage against your
house, then you will get a good interest rate and a decent amount of
money, because your house is considered to be a safe asset that the
lender can get back if needed and if you cannot repay your loan.

+ You can offset the interest payments against your earnings,
therefore paying less income tax. Same point as number 2. You can
include your repayments of the loan as money you're not earning,
therefore paying less income tax.

- You are personally liable for the loan. If your company goes bust,
the creditors can come after you. If the loan was secured against your
home, you can lose your home. This is fairly straightforward. If you
used your house to get the loan and you can't repay the loan, then you
will lose your house. This makes it riskier for you to take out the
loan against your name.


Hope this helps, please let me know if you have any problems with
something specific.

Thanks.
endo

---

Clarification of Answer by endo-ga on 19 Jan 2006 10:33 PST

Thank you for taking the time to rate my answer. If you let me know
why you are dissatisfied, I can try and provide you with more
information.

Thanks.
endo

One other thing that might be worth noting; commercial banks do not
make unsecured loans to businesses in my experience. The example where
a loan is made to a public stock corporation, for instance, still
implies the loan is "guaranteed" by corporation principles, so the
house(s) is still collateral that may be seized. Very few "public"
corporations are public in the eyes of the banks. The "covenants and
conditions" of loan agreements are boilerplates based on years of
banking, and will assure that every scrap of collateral is tied up.
"Inventory" and "fixtures" tend to drop precipitously in value, and
are rarely included in collateral from a practical standpoint. I
haven't watched banking closely in decades, so take this with a grain
of salt.

Thank you for your comment, you are correct in assuming that a loan
will almost always be secured against some form of assets. But from
what I've gathered from the question, the person has no assets as such
for the company.

I wouldn't worry too much about banks though, loans go through a
complicated system once you've taken it out with a bank. They get
stuck together into different financial products and risk is
distributed throughout the industry with structured products and
derivatives.