putting all personal savings into a business

[m.sunny]

Age: 40
Spouse’s/Partner's age: 35

Annual gross income from employment or profession: 30k. Self-employed
Annual gross income of spouse: 35k, Company Director, new business, 50% share

Monthly take-home pay -
Variable- 3000-4000e

In general are you:
(a) spending more than you earn, or
(b) saving?
living within our means, saving between 500-1000e a month

Rough estimate of value of home
Amount outstanding on your mortgage:
What interest rate are you paying?
Renting @ 900 p.m.

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?

Savings and investments:
40k Bank Deposit Acc

Do you have a pension scheme?
No

Do you own any investment or other property?
No
Ages of children:
2 y.o.

Life insurance:
No

What specific question do you have or what issues are of concern to you?

My partner is in the process of opening a new business, which is is being funded by a Small Business Loan (50k) and personal investment from both directors (30k each).

While our savings has always been earmarked for a house purchase deposit at some point or has offered us a safety net in tighter times recently, we are now thinking of using it for the business?.

Would it make more sense to
1. get a personal loan for all/part of the 30k personal investment needed (i.e. keep most of our savings in the bank, but have high monthly loan repayments) for the next 10 years at least

2. Use our savings, and simply start saving house deposit all over again (i.e we'll at least remain personally debt free, but have little contingency)...

-I am equally adverse to both options, my partner is angling for option 2...

thank you for help...

 

[Brendan Burgess]

Hi m

This is a really interesting and fundamental question.

You have to make a choice between starting a business now or buying a house now. If you start a business, then you have to defer the purchase of a house indefinitely.

As you have made the choice to start the business, then Option 2 is very definitely the best option. It makes no sense to borrow money while you have a similar amount on deposit. You would probably pay around 9% on the loan while getting around 2% deposit intrest.

Who are you getting the Small Business Loan from? What rate are you paying?


Are they setting up a limited company or a partnership?

Has your partner and her business partner signed a partnership agreement? It is absolutely fundamental that they do so.

And now, the difficult bit. Your partner is going into business using your joint money. Of course, you are both getting on well and you are in love. But you must still do your own financial agreement which accounts for what happens if you split up. This agreeement would specify that you are lending her money and that you are not investing in the business.

If you split up and there is a big row, a lack of clarity over the finances makes it even more difficult. If it's a partnership, she could claim you were a partner. You could even be made liable for the debts of the partnership. You must clarify all these things up front.

As I write this, I wonder if you should split your €40k savings now into your €20k and her €20k. Maybe she should invest her €20k in the business and she would then borrow the additional €10k. She could borrow this from a bank or she could borrow it from you.