Sunday, 19 July 2015

choosing a UK business bank account



Related:
Choosing a UK business bank account <this page
http://veg-buildlog.blogspot.com/2015/07/setting-up-shop-with-uk-business-bank.html
Free, Fast and Pretty: shopping cart software for ecommerce <links back
http://veg-buildlog.blogspot.com/2015/06/shopping-cart-software-for-ecommerce.html
Simple Bookkeeping and Account Agregators <links back
http://veg-buildlog.blogspot.com/2015/12/simple-book-keeping-and-account.html
Free Online Bookkeeping Software for Simple Accounts <links back
http://veg-buildlog.blogspot.com/2016/08/free-online-book-keeping-software-for.html
Boring Economics is Interesting - long rambling post about being a UK economics student during the 1980s recession - no link back
http://veg-buildlog.blogspot.com/2015/10/boring-economics-teaching-is-interesting.html

Choosing a UK business bank account - introduction

"How do I choose a bank account for a tech startup in East London? I have no money." This question came-up somewhere and I had a go at answering:  A couple of other answers were "I have been refused". Maybe that refusal helps both sides. 
Do you need a business overdraft? No. Do you need funding for assets? - Do you need a business name on a bank account? maybe not - Do you want to book-keeping aids to tag categories like costs and sales to pay tax? Yes. -  Merchant accounts and currency conversion

Do you need a business overdraft? No.


You've read the news. You know the name Fred Goodwin. If you didn't work for him directly, selling dodgy banking products to avoid being sacked, you worked for him indirectly because your taxes bail-out his creations. Maybe you have dealt with firms that are crippled by dodgy banking products sold by the likes of Goodwin. Nobody needs the trouble of doing business with a UK bank.

P2Pmoney.co.uk
has some better ideas for business borrowing. The one they like to promote is for established businesses on P2Pmoney.co.uk/compare/business.htm - not that it is a good one for lenders.


I've read that Handelsbanken.co.uk and Aldermore.co.uk banks are un-typical if you really must get an overdraft, but working from home and spending nothing is a cheaper option. Handelsbanken are staff-owned, and use HSBC for their back-end software so the usual software could make sense of their statements for your accounts. The new Oaknorth Bank hope to lend to smaller businesses too.


Better still, keep a part-time day job until some money comes-in. If the business is a good one, money will come-in to re-invest. 
Porridge oats are under a pound a kilo as are some well-known root vegetables. If your new-found business partners are not interested in splitting bulk packs of vegetables from Iceland, maybe they are not good at business. If you need to cover your own living costs while the business is small, you could try moving somewhere cheaper than Shorditch like Ayreshire, County Durham, Bolton and Gwent. If your startup has anything to do with manufacturing, it would be good to be near the factories in your trade and save having to own loads of stock while it's on the boat from China. If it needs graduates in accountancy or computer science, you could experiment with Unistats to find clues about the areas with the cheapest graduate accountants or computer scientists. For accountants the areas are Colerane and Hull.

If your business plan says "spend a million pounds mainly on advertising a brand so we can sell our £30 T shirts before the competition", ask yourself: wouldn't people prefer to buy cheaper for lack of a million pound debt at the supplier? And when tech-hub startups move to Shoreditch they just put-up property prices and discourage the shoe wholesalers and bag factories that still survive there. If you have to move there, maybe you should sell shoes and bags from the wholesalers and factories in Shoreditch alongside your tech startup. The wholesalers sell blingey Italian shoes along Shoreditch high street.This guide to buying looks a bit complicated but everyone has their own style; you have to do a lot of work finding a supplier, and find out what they want to make in terms of what designs they are used to churning-out on their machines, what their minimums are for free set-up or free delivery, and what's a typical lead time. There was a childrens-wear sewing factory in Bentley Road off Balls Pond Road for example. They had no web site and were had to track-down, but if you wanted the quantities and products the wanted to make, they'd probably work-out a price and save you importing a container-load from China with a 3-month lead time. I think they were called Figgins and have moved to Essex; I don't know if they still want orders. Jumping back to tech startups, it might be cheaper to move to the welsh valleys or the north east for cheap housing when you go full-time, so you have lower costs and you don't crowd-out the firms already operating in Shoreditch.

If you want a business loan for a small amount like £3,000, now that you have sourced your products from the UK and kept your day job part-time, you might try the loans available to lure the unwary into debt. There are lots of them. Cash transfer credit card offers are a good search, because balance transfer cards only allow you to transfer debt from another credit card, and it usually costs something like 2.4% via Paypal to take that credit limit out of the credit card account. Exceptions have cropped-up in the past, called "mule cards" apparently, but not very often as the Smiths lyric says.

Credit cards for personal use try to make themselves hard to use for business. The statement data might be down-load-able to an accounts programme, but it will build-up a debt between the statement date and the date of the direct debt, and the columns will be presented in a bamboozling way. Some kind of accounts software is probably necessary to fight back. Or maybe a system of using two credit cards - one for the first two weeks of the month, paid-off in week four, and another for the second two weeks of the month, paid-off in week two. This is so much easier to write than to do in practice that I suggest software to keep track with the other idea as a sideline.

Oh, an afterthought about cheap eating. It has to be fairly quick as well, if you are earning and possibly doing two jobs, so things like wholesale markets and grow-your-own don't really help, but there is a list of some cheap food shops at the end of another post about selling surplus food.
Do you need a business overdraft? No. Do you need funding for assets? - Do you need a business name on a bank account? maybe not - Do you want to book-keeping aids to tag categories like costs and sales to pay tax? Yes. -  Merchant accounts and currency conversion

Do you need funding for assets?


victorian machine sketched in black and whiteThis is an asset. You can see that it has scrap value and a possibly higher value as a second-hand machine, minus high transport costs and depending on the right market for sale at short notice. Like cars, but much more awkward with a narrower market and harder to move.

If value can be demonstrated with photos and links to sites where such machines are traded, there is a good case to persuade people on a P2P funding site to finance your asset. Thinking of which, you should also buy your machines at the same places where your receiver would sell them, so you don't have to borrow so much money. This is a big deal and everyone has their own style: recession-people agonise for days and months about how to get things free. Boom people save days and months by buying things new on credit and earn the money back in time saved. Sometimes conditions make recession people or boom people feel that they made the right decision, but I think the decision is bred-in from life experience and upbringing; reality doesn't change it and I don't know if boom people or recession people do better at business.

One piece of evidence is the number of stories of refugees doing well in business, often in Hackney or Leicester or inner-city areas and often by knowing how to do something in a smaller workshop, for smaller batch-sizes, and on a lower pay-scale than is normal in more established companies. Hugenots and Jews set the tradition. If you can find a Syrian refugee with factory experience making cotton or whatever else they do on Syria, you might be on to something. In any case, the workshop that can make things on a smaller scale than Ford or NASSA is quite likely in an inner city. Somewhere that council would like to demolish for car-parking and tech hubs, and move to an industrial estate a bus-ride away outside the ring road.

Rent

If you can't find a workshop to sell  anything at all like what you want, and still need an asset, then rent could be a problem as well. Ideally, you live somewhere with spare space like a farm or a place with a garage you can clear for your asset. This is unlikely in Shoreditch so there comes a point when your mum / flatmate / landlord / hostel / tent becomes full of the assets needed for heavy industry.

You could google terms like "hackerspace" and "makerlab" looking for people who will let you store your asset or let you use theirs. Hackney is a hotbed for places like this. I have not joined any of these but can add a few early search results - http://openworkshopnetwork.com - http://www.hackspace.org.uk/ - https://www.nesta.org.uk/sites/default/files/open_dataset_of_uk_makerspaces_users_guide.pdf -
https://maps.london.gov.uk/workspaces/

You could, a last resort, you could try renting the cheapest space on Estates Gazette near Shoreditch, but that raises the problem of commuting to the darn place or leaving it empty when not needed, and of dealing with landlords. From a very little bit of experience,  I think London landlords will not get out of bed to pay-in a cheque for under £1,000 a month and some of them put every concievable unfair clause into the lease so you need to find a cheap virtual lawyer to check and try to get them taken-out.

Repairs

If you have time, you should find out as much as you can about servicing the machines you have bought on ebay or apex auctions or for-sale co uk or whatever site. Otherwise you are asking lenders to fund a dealers' markup, which can't be sold if things go wrong. It's like something lost down the drain.

IT and coms costs

The lobbies of concert halls and libraries are fuller than before, stuffed with people using free wifi. Whoever they are and whatever they are doing, some of them might be saving startup costs. On which point, Pete Foreman's https://payg-petef.rhcloud.com/ is the best link on an otherwise rather vague page on this same blog about cheap used phones and pay as you go chips, which are another communications cost. The pay-as-you-go site sometimes lists options for a little free data roaming as well as low-tariff sim cards. While thinking, you should sign-up with a free cashback site in case it happens to have cashback on something you would have bought anyway.

A brand for increasing the price of T shirts

If your asset is something like "a brand for increasing the price of T shirts", then it costs nothing to dream-up and might earn nothing if sold at short notice. This is why people tend to work in trades and professions and intellectual property; they hope to become self-employed without massive amounts of capital or rent, by living on their wits; they should not need funding. They should be able to do other things like doing a part-time day job and maybe sharing customers with others in the same position (I am going from T shirts to things like law and accountancy here but there is probably an equivalent for T shirts).

There was a time when a brand like Clarks Shoes was worth more than expected and could be even more valuable if separated from expensive factories in the UK. That was a nieve time, and I hope that consumers are more savvy to the fact that the brand feels nice to wear because staff are paid a UK wage; another brand on a UK-made shoe should sell almost as well, while the famous brand on a Chinese shoe should sell much worse. I hope that's where the market is heading.
Do you need a business overdraft? No. Do you need funding for assets? - Do you need a business name on a bank account? maybe not - Do you want to book-keeping aids to tag categories like costs and sales to pay tax? Yes. -  Merchant accounts and currency conversion

Do you need a business name on a bank account? - maybe not.


I run an online shop selling nonleather footwear with a separate but personal-name account. My personal account is at another bank, so there's no need to trouble one bank with a request for two similar but separate accounts. Separate bank accounts are required by common sense and minimum legal standards of tax reporting. I've never found banking a problem. If you set-up a face-to-face stall, then cash payments might be a problem and cheap cash sorting machines make it easier to bag and pay-in. Metrobank offers use of their machines free. If you want an account for vanishingly rare cheques made-out to your business name, then maybe someone with a business bank account can ask their bank to call it "trading as... x y and z" on the software. Once a customer has made the decision to pay them so-much-a-month, banks are less fussy about what's written on the name of the account. They might even write "trading as... x y and z" on the software title of your personal account, but their desire to get money for nothing might prevent them doing that and even prompt them to close your personal account.

If your existing account allows you do download a spreadsheet of a years' transactions in midata format, that can be used to make account comparison web sites more accurate. TSB and Halifax came at the top of my lists, but Halifax prove a bit awkward for the overseas spending card I have with them so that leaves TSB.
https://www.gov.uk/government/news/the-midata-vision-of-consumer-empowerment has the background and https://money.gocompare.com/currentaccounts/midata#/ does the comparison.

If you limit your liability with a registered company, it's more usual to have a company account. You want people to know what they are dealing-with and that liablity is limited, just as they do. There is a work-around. Say your name is J Blogs (if that is your name - I don't know - but you don't have to say it aloud) you could have a company called J Blogs Ltd. That might help make things look cool to everyone, if you are using an account called "J Blogs". Maybe the bank will pay in cheques to "J Blogs" without the "Ltd", or more likely nobody will ever send you a cheque.

The VAT system requires a bank account that any rebates can be paid-in to. "This must be an account held in the UK and the account name must match the business name you are registering with VAT", according to the guidance notes to the VAT1 registration form, on un-known authority and without detail about the closeness of "match". I emailed to ask, and got a helpful phone call a week later: "I can't say any more than what's in the handbook ... if we have to pay a company, then the bank account has to match the company name, and it's a company account then it would have 'ltd' as part of the name of the account". I guess that means it's worth a try calling a company J Blogs with a bank account called J Blogs. If there is an insurmountable problem worth more than the cost of a business bank account, then you can open one. Maybe in the future there will be a free business bank account available somewhere.

You might expect a law that the account must be in a company name because there's law about letters emails and faxes, but not the name of the bank account. People here seem to have researched the subject and think the same. They and the staff of Companies House are sure that any law would be in the Companies Act, which you'd want to look at if you set-up a company. I think there are more general laws about not decieving people.

Business Account Finder - British Bankers Association is the link for comparing accounts in a business name. There used to be some "free forever" ones at RBS, Santander and HBOS, but after reading all 21 pages of a moneysavingexpert thread I see that each bank withdrew their offer and they now charge £5.50-£7.50ish a month, sometimes with free extra automated transactions if you don't use any manual ones. Business Account Finder does not sort accounts for the cheapest standing charge, so you have to look at every single entry to find a free one and then check the bank's web site to see if the thing is still free. I have some hopes of an online-only Metrobank account but haven't checked yet. One user on moneysavingexpert suggested Cumberland if you live near them - at the time they were free to locals. Another suggested Carter Allen "traditionally have offered free banking to IT contractors, however you would now need to be recommeneded by an intermediary". A third mentioned ICCI who have a business account that seems to have no monthly fees but is geared to import / export companies and doesn't have much clarity attached about whether someone like a plumber in the UK can use it. There is a long PDF application form that asks for a solicitor or accountant to witness one or two things, and asks your existing turnover in thousands. It also asks you to repeat various names as directors, people of significant financial control, and so-on. All on a form that converts numbers into currency by mistake. I decided after a while that this free bank account wasn't available to me, but you may have better luck.

If your business registers as a limited company, there is a list of company formation agents that are sometimes cheaper than Companies House's own £13 charge and sometimes have cashback offers at banks. http://www.planwriter.co.uk/company-formation-agent.php has one or two, that turn-out not to exist any more on search engines, but if you search every now and then for a day or two then good offers come-up on the bing and google ads. If you search Companies House web pages for "
company formation agents and secretarial agents", they have a full list of people hooked-up to their software. The most expensive was over £500; no cheaper ones emerged. If you have time to shop around, a better use of it is to use bing and google for a few minutes a day over a day or two. After a while, offers appear in the paid-for ads - my cheapest turned up on Bing, quoting £5 at The Formations Company.

If your business is large enough to employ staff, it might benefit from the bundle of services including a Co-Op business bank account from Federation of Small Businesses, who have a minimum charge that rises with turnover. You have to ring them to find out the charge. This bunch called Business Banking Insight phoned to do a business banking user survey, which didn't quite fit reality because if you have an own-name account and don't use business banking services, it's hard to rate your business banking services out of ten. People who actively chose their business bank and use it tend to give high scores. Whores bank is top of the list.
Do you need a business overdraft? No. Do you need funding for assets? - Do you need a business name on a bank account? maybe not - Do you want to book-keeping aids to tag categories like costs and sales to pay tax? Yes. -  Merchant accounts and currency conversion

Do you want book-keeping aids to tag categories like costs and sales to pay tax? Yes.

Online accounts software probably appeals to a low-budget tech startup more. It's easier to share with an accountant if you need to pay for help, or with colleagues if you aren't renting an office or working near each other. This link is to a separate post, just about free online accounts software. Isn't that good?

Thanks for paying tax. You help pay for my government services.
The bank statement is the most accurate and automated book-keeping aid for tax payers.

https://www.gov.uk/simpler-income-tax-cash-basis suits small business

If your turnover crosses the gov.uk/vat-registration-thresholds you have to do
https://www.gov.uk/vat-record-keeping


You need to download the bank statement each month (1507.xls as a file name for month seven in 2015 for example) and tag each line to a category before you forget what that mystery paypal payment was.

Bank software often downloads bank statements in particular flavours of an un-documented format called .qif - Quicken Interchange Format - which is best avoided. Download a file in every other available format in case one such as .pdf or .csv has detail which another lacks.

You also need one credit card per type of transaction paid with a credit card, such as one credit card for delivery costs and one for travel. Otherwise you need to account for each line of the credit card statements as well, and how they interact with the bank statement, which is fiddly work for no benefit. Look on moneysavingexpert for cashback visa and mastercards in personal names that might give you .5% cashback and up to one months' credit. These need have nothing to do with the business bank account except being set to withdraw the full balance from it each month by direct debit. If you try to include their statements in your accounting systems you'll discover gotchas to discourage business use, like the direct debit day being different from the statement day, but if you keep one card per type of transaction such as one for travel and one for postage, you don't need to worry so much about their statements.

Barclays private accounts do allow some categorization on their online bank statements. Co-op / Smile used to be hard to download; you needed to cut and paste or trust waveaps to do it for you (see below) but most accounts now let you download a .csv file each month.

Talking of accounting, a free spreadsheet for keeping track of each line of account is useful.
Different software and different accounts programs go together better or worse.
Specialised ones will recognise regular transactions. Extra-good ones will track enough for you to do a VAT return, which I've never done. There are free ones for your hard disc here and there. I once tried Acemoney which is free for a single bank account and nicely designed for PC or Mac; programs like Quicken that I used for a few years were a pain with their closed-source file formats designed to keep you loyal and their "sunset policy" to try to force you to buy more of their software every-time the sun sets. Grisbi Gnucash & Turbocash were a bit compicated for what I needed, but entirely open source and free.

Waveaps is one of the few free online accounting programs on the tech radar list to have kept going for a few years, and it can scrape data from a large number of bank accounts. It states that it's working on systems to double-check data for errors caused by changes of format on online bank statements.

https://mybrightbook.com/ is another free online accounting app that has kept going for a few years. It accepts bank statement files as .ofx or .qif with a special converter for Co-op files.

Quickfile.co.uk, the online service, is the free accounts software that I use. Quickfile now charges £50 if you have more than 1000 transactions a year. The average is calculated each month, like VAT. That compares to zero for free software on your hard disc, zero for Waveapps, and zero for Brightbooks.

When I used to use Quickfile I discovered this. It likes to set-up accounts for money invoiced and not yet paid or received; you have to try to stop it doing that or things get complicated. It also helps if you have pretend customers like "paypal", and "merchant account", to save electronic accounting of those accounts, and to have pretend suppliers like "office stuff", rather than build-up a list of every stationary shop you've ever used your debit card at. VAT accounting might complicate things a bit.

Lastly, Quickfile will automatically download statements from one or two of the major UK banks: Barclays, Lloyds TSB Business Banking, HSBC Business Banking, Natwest, Royal Bank of Scotland, Santander Business Banking. These are done through their own Chrome browser plug-in.

That list of banks is worth checking-out, because it saves you downloading and up-loading the data from your bank to quickfile each month. If you do, most banks and probably all business banks let you download the data manually, while more of them let you keep a copy via Waveapps. These are formats for uploading to quickfile: Excel (csv), Microsoft Money (ofx), Quickbooks (qbo), Quicken (qif), Text file (txt) - Santander only - Santander personal accounts provide this
Do you need a business overdraft? No. Do you need funding for assets? - Do you need a business name on a bank account? maybe not - Do you want to book-keeping aids to tag categories like costs and sales to pay tax? Yes. -  Merchant accounts and currency conversion

Do you need an accountant? I don't have one.

I don't know why people have accountants. Likely reasons include statutory account-signing for limited liability on a larger turnover, tax advice, spotting mistakes before the tax office, and out-sourcing of office work that is so routine that accountants know how to automate it.

On the other hand, Waveapps is free and does a lot of the book-keeping work except payroll.

I've just come back with a meeting at Tax Assist who charge from £1295 per year for business accounts. This Guardian article suggests that a lot of people get deals around £10+VAT a month if paid annually, for one-person income tax returns under the VAT threshold, which could be good value for someone who's earning a lot and doesn't have a lot of time. Search "cheapest accountants" on Google or Bing to find H & Co at the same price - £8.34 a month + VAT minimum price for income tax.. This is H&C's price list, that's published with a hefty referral fee after each item.

Limited Company Accounts
£1,000

Sole Trader Accounts
£200

Contractors and Taxi Drivers (Under 12k PA)
£150

Contractors and Taxi Drivers (Up to 50k PA)
£200

Similar searches come-up with the same kind of price, but presumably the name of the accounts package ought to be part of the search if you want someone who can log-on and get the gist quickly. Not much comes-up under "cheap accountant waveapps". Wave's own advert pages ought to be a place to look - specially in areas of high accountancy graduate unemployment like Hull and Coleraine, but the results are more restrained and often out of date.

I have another blog post called "star courses" that says something about finding cheap accountancy graduates from Unistats data about their earnings, and don't know why the two findings don't match. I would expect to see people from Coleraine and Hull advertising on the pages of Waveapps and on Gumtree to offer themselves as book keepers and accountants, but that doesn't much happen. There is one cheap accountancy firm in Hull advertising on Waveapps. It could be that I am searching for the wrong things; one review site says that Waveapps is no good for VAT, so maybe the cheap accountants are busy on another piece of software.

Merchant accounts and currency conversion. 

Outfits like Paypal are a good start until you have some turnover. There is a new one for direct debits called Gocardless.co.uk which has one or two others working alongside for small commission between them. Whichever route you choose the charge to you is 1%

Elavon Merchant Services now offers me a web service with no need to hire a terminal. Apparently this is called the mobile pay-as-you-go version and they tell me that I now pay as much for it as I do for Paypal on some cards - the fees are broken down by card with debit cards cheapest. Worldpay has just emailed to say that they offer pay-as-you-go prices as well. I don't know if they have a deal that lets you use a web logon to their mobile version and save the price of terminal, or not, but that's what I do with Elavon. A thid provider cropped-up when I told Wave Apps that I had a limited company. Their online offer to Stripe suddenly got cheaper, with the headline rate at 1.4% but higher rates for overseas cards and no cheap rate for debit cards, so it is more expensive than the 1.4% figure first looks.

I don't know a site to publish prices given for card processing, but under 2% for credit cards is respectable, plus an amount for each transaction, and usually plus £15 a month for a terminal. There's a growing market in smartphone payment systems from the likes of SumUp, but they all assume you want to pay more than 2%, often plus a monthly payment, which personally I do not want to do. I want to sell UK-made goods on a lowish margin, and pay a little tax. I do not want to sell Chinese goods on a huge margin and not care how much paypal take, if there's a choice.

If you can get customers to pay by bank transfer, that's free to most accounts but don't advertise bank details if it's easy for people to set-up fraudulent direct debits. They appear on your account with plausible names like "£30 National Trust" or "£29.45 Virgin Media", and you have to contact your bank to cancel them straight away. Usually you get your money back.

Currency conversion. The P2P outfits Transferwise or Currencyfair will do a better job than any bank. Thomas Running's blog post about banking for nomads lists one or two "bank accounts for international travellers and nomads", excluding the UK's Ivobank which survived a year before it closed, but others may last longer. LHV Bank of Lithuania looked likely to offer a free euro account but needed an id.ee proof of identity, which costs just over €100. Then I discovered I was wrong, after buying the id but that was my fault.

For import and export companies, a new outfit called something like B2B Euro Account offer a minimal euro account with next to no fees except 1% currency conversion - I don't know if it's useful to anyone but found it by accident.
Good luck
Do you need a business overdraft? No. Do you need funding for assets? - Do you need a business name on a bank account? maybe not - Do you want to book-keeping aids to tag categories like costs and sales to pay tax? Yes. - Merchant accounts and currency conversion

Magenta 14's guide to security, from a post on Rebuildingsociety, posted here so that I have somewhere to read it more carefully - I haven't really got the hang. T

Magenta14: A wee guide to Security for reference.

  • magenta14
    Hi all,
    When I 1st joined ReBS in late February 2014 I found myself bewildered by the types of Guarantees, or combinations thereof, offered to secure my family’s funds. Like many perhaps it’s a rapid learning curve resulting in my largest single Default £400 + sustained in 2014. 18 months on those funds with Mowbray & Son’s are still outstanding. [Please take a wee look at that loan site for information on the work recoveries have done on behalf of myself and other Lenders...

    Though oft times a very tricky task to decide who to lend to so to help you make up your minds if you wish to lend then here's a guide to the Guarantee's to help you reduce your risk and give you a better chance of getting a little, some, some more. Or all of your funds back in the event of a default.
    Lending can be a seriously risky business so [when NOT if a 'marital breakdown' occurs make sure you are using the best protection to secure your assets.
    Happy reading and take care,
    James.

    A] Personal Guarantee.

    Note: Very Commonly offered to ‘protect’ a loan here at ReBS…You may wish to consider how financially secure the person[s] are when this level of protection is offered to protect your funds, would they be able to meet their obligations in the event of a Default.

    Is the Business Owner capable, really know their market, is their Business model built on a strong foundation.


    Definition – What does Personal Guarantee mean?

    A personal guarantee is an arrangement that is signed and verified by a borrower, or a third party, in order to accept the liability for one’s own or a third party’s obligations or funds payable. The lender, or the first party, that takes this guarantee from the borrower, or a third party acting on the borrower’s behalf, can attach the guarantor’s personal assets in case the borrower fails to repay the debt or fails to meet any of the obligations covered by the guarantee. The personal guarantee is significant because it acts as a signed blank check. If the borrower defaults on a payment, the lender is directly eligible for the named property or asset without being required to attempt to recover the payment from the borrower. This guarantee is the basis of lending to startups in the absence of collaterals.

    Divestopedia explains Personal Guarantee:
    When a firm wishes to borrow funds, a personal guarantee signed by the owners or promoters as well as a third person, in some cases, may be insisted upon by the lender. This is especially true for a startup. This guarantee is demanded in order to reduce the risk of a loan default. Many firms have a limited liability status, in which case the partners and shareholders have a very nominal liability. In such cases, the assets of the firm are pledged for a loan, and a personal guarantee, signed by the owners or directors, is the backup for a larger quantum of borrowing. If there is a personal guarantee given by a third party or the partners or directors of the firm, the personal assets of the guarantors can be attached immediately, which ensures the quick recovery of debts and other obligations, without even seeking recovery from the original borrowing firm. Normally, liquidating assets and recovering cash is a lengthy and complicated process, and a personal guarantee provides additional convenience to lenders. From the borrower’s point of view, personal guarantee is not the preferred option. Instead of signing a personal guarantee, a pledging of some specific assets as collateral can be considered by the borrower, in which case the borrower may save some of his or her assets and spousal assets, in case the loan is not repaid in time.

    A.1] What is Personal Guarantee Insurance?

    Here’s a link to follow to provide a wee guide on this product, hope it helps?
    http://www.begbies-traynorgroup.com/articles/director-advice/what-is-personal-guarantee-insurance .

    B] Corporate Guarantee

    Note: Certain Lenders at ReBS actively seek to secure this type of guarantee because of the enhanced protection it affords to their own and other peoples Lent Funds.

    Definition of “Corporate Guarantee”:
    A Corporate Guarantee is a guarantee in which a corporation agrees to be held responsible for completing the duties and obligations of a debtor to a lender, in the event that the debtor fails to fulfill the terms of the debtor-lender contract. Also known as a corporate guaranty.

    C] Cross Guarantee:

    Note: Certain Lenders at ReBS actively seek to secure this type of guarantee because of the enhanced protection it affords to their own and other peoples Lent Funds.

    Definition – What does Cross Guarantee mean?:

    A cross guarantee is an arrangement between two or more related firms to provide reciprocal guarantees for each other’s liabilities, fulfillment of promises, or obligations. This guarantee is agreed upon among related companies, such as groups of companies or a parent company and subsidiaries and affiliates. A creditor of any one firm of the group becomes the creditor of every other firm of the group.

    It is significant because the contractual promise reduces the risk of the lenders, thus enabling borrowers to negotiate for a better deal. Cross guarantee may be beneficial to borrower with respect to better interest rates, tenure of repayment, and/ or quantum of loan.

    Divestopedia explains Cross Guarantee:
    The place where cross guarantees become cross border guarantees might invite scrutiny of regulators of different countries. Cross guarantees must be disclosed under contingent liability, along with lawsuits and warranties with the balance sheets. Sometimes implicit cross guarantee may be implied merely by the passive association of a firm with a firm of global or regional reputation, and a higher credit rating may result from this situation.
    While drafting the guarantee agreement, it is customary to include a clause of indemnity to give additional advantage to the lender. In such cases, the courts may favor the lender by interpreting the agreement as an indemnity bond, which makes it unfavorable from the guarantor’s point of view. The capacity to give cross guarantee should be based on the article of association of the firms. If the directors are the beneficiaries of the guarantee, then the shareholders approval may be required. The lender can enforce a guarantee even if the security of principal borrowers’ assets is held by him.

    D] First Charge [Exceptionally rare here at ReBS].

    Note: Affords Lenders a high degree of protection in return for receiving a very favourable loan rate.
    A legal right under which the owner of the first charge has the right to decide on what to do with a property if the borrower fails to maintain the repayments i.e. the mortgage lender will in most cases hold the first charge on a property until the mortgage is fully repaid.

    E] What is a ‘Second Charge’? [Commonly offered at ReBS].

    Note: You wish to look for a high equity value in the Property or Properties being offered as 2nd charge security because in a default situation the 1st charge holder may choose to sell the Property below market value Just to recover their own funds. Please consider that the 1st charge holder is under no obligation to protect the interests of the 2nd charge holder.
    A Second Charge is a legal charge put on a property in favour of a lender, or creditor. A Second Charge comes second in line to a ‘First Charge’, which would normally be your mortgage.
    When the property gets sold, the First Charge – i.e. the mortgage, will be cleared in full before the Second Charge receives any money. The Second Charge would then be in line to receive funds from the sale, up to the full outstanding balance of the Second Charge.
    Any funds remaining from the sale at this point would be passed to the seller.
    In closing:
    For those of you like me who may struggle with all the various security types offered to you by prospective Borrowers at ReBS I have spent some time today seeking out the definitions that have been presented in the clearest English rather than something more complicated.
    [Life's too short, keep it simple, keep safe].
    Hope you find the information helpful, please feel free to retain for future reference.
    With Best regards, James.
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    F] Debentures:

    Note: A strong form of lender Security provided the assets covered by the Debenture are Really worth something under an auction or ‘Fire Sale’ situation following on from a Company Insolvency.
    Some fellow Members will check to see what’s covered [Captured] by the Debenture [to work out it's value] Before lending their funds.

    When lending money to a company (or indeed a limited liability partnership), lenders want to ensure that their interests are protected as securely as possible. Debentures are a common method of obtaining security, under which a lender is typically granted both fixed and floating charges over all of a company’s assets and undertakings.

    With their combination of fixed and floating charges, debentures are intended to meet the need of companies for increased working capital by allowing additional borrowing secured on the circulating assets of a trading business. A debenture is widely accepted as a necessity for many corporate lending arrangements, in particular where there is not enough security over property alone for the lender to feel comfortable.

    The key distinction between a fixed and floating charge is that a lender has control of the assets subject to a fixed charge, whereas the borrower retains control over those assets subject to a floating charge.

    Fixed charges are typically granted by a borrower over assets such as freehold and leasehold properties, and fixtures such as plant and machinery if these are owned by the borrower. Fixed charges can also be granted over book debts, uncalled capital, goodwill and shares.A debenture will also typically include floating charges over present and future move able assets such as stock and unsecured fixtures. Floating charges are less attractive to a lender than fixed charges as they rank behind preferential creditors and certain other creditors in the event of a default by a borrower. The borrower is also able to deal with the assets subject to the charge in the ordinary course of business, by selling stock for example, without obtaining the lender’s consent, subject to any restrictions to the contrary in the debenture itself. Bank debentures are normally expressed to be “all monies” debentures: that is to say, they secure not only existing loans but all present and future loan advances. The all-encompassing nature of debentures makes them an attractive form of security for lenders, but equally unattractive to borrowers.
    Unfortunately for the borrower, in the event of a default, the lender has the right to appoint an administrator or administrative receiver to realise any assets subject to a fixed charge, and will be paid out of the proceeds in preference to other creditors. In such circumstances the lender would normally gain control over the assets which were subject to floating charges, which would crystallise to become fixed charges, leaving the borrower unable to deal with the assets in the ordinary course of business.

    In order to be enforceable, security under a debenture needs to be perfected. This involves registering the debenture document at Companies House, and may also involve obtaining prior consent by giving notice of the security interests to third parties and the registration of the security interest in other public registers such as the Land Registry.
    [Life's too short, keep it simple, keep your assets safe].
    Best regards, James.






    Blog on a single page
    the author sells vegan shoes online at Veganline.com
    , a UK online vegan shoe shop. Many of them are UK-made or European-made.

    O
    h I've just done a post about Keele Uni Economics teaching in the early 80s which was so bad it becomes interesting to know how bad an economics course can be. One reason seems to the that the McGraw Hill Company publishes stuff like lesson plans and lecture notes to anyone to use while teaching from the textbook, so if as a teacher you make some excuse to cancel the more interesting bits of the course


    By the way I have just done a blog post about Lord Sewell, who seems to have done nothing wrong except stating that his colleagues earn £300 a day for turning-up and dong F-all, which everybody knows but his colleagues don't want published in The Sun

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