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Refinancing some of my loans - a little stretched at the moment

n.d.os

I’ve been managing two loans, and I’d like some advice. First, there’s an ongoing loan with AIB that I’ve been topping up for personal projects and more recently to invest in my company. The APR rate is around 8.9%, and I usually cover it by transferring money from the company back into my personal account each month. However, as my business grows, I need to reinvest the profit from that loan. Last year, we saw a 48% growth, but almost everything is going back into the business.

In early 2023, I bought a one-year-old car, had issues with it, and couldn’t return it. So, I purchased a brand-new electric car, which I’m happy with. However, due to the loss on the first car, my monthly PCP payments are €750 a month over four years. While I don’t want to sell the car, I'll be paying for it for 3 more years.

Recently, a family medical procedure required another loan, and I’m feeling a little bit stretched. I want to maintain flexibility for my business but also manage personal finances better. I've done a lot of work on my bills and in general my other outgoings are very low.

Are there ways to renegotiate or adjust these loans in the short term? I’m not in financial trouble, but with the cost of living crisis, I’d like more breathing room in case things get tougher in Ireland over the next few years. I'm always trying to save money where I can. I am cautious about imposing any restrictions or limitations on my finances with AIB, both for personal and business banking. Ideally I want to do another strong year of business and at that point put a good chunk of money from my business back into my personal loans. That comes with its own risks which is a conversation for another day but at the moment I'm looking at how I can reduce my loans, at least in the short term.

Thanks in advance to anyone who has experience in offering this kind of advice.

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antoinolachtnai

This is not a very tax efficient way to finance a company. Because of the way the taxation works you are effectively paying 18 percent for the financing, assuming you are on the higher rate.

The growth of your business is stretching you as you tell the story. If the business keeps growing you will be stretched even more. In the other hand it may just be that the business isn’t sufficiently profitable in spite of the growth.

I think you really need to talk to an accountant. The tiny amount of detail you are willing to reveal (for your own good reasons I am sure) won’t let anybody give you much advice.

n.d.os

https://www.boards.ie/discussion/comment/122403884#Comment_122403884

The primary reason I self-financed the company is due to risk. As a first-time entrepreneur, I hesitated to take out a business loan for personal reasons. If anything were to go wrong, the responsibility would fall solely on me, and there would be no company to clean up the aftermath. While it’s true that our business isn’t yet sufficiently profitable, this largely stems from our status as a young company. Since we operate in the product-based industry, manufacturing plays a significant role. To ensure year-round profitability, we’re actively expanding our inventory now, with the goal of achieving healthy net profits in the coming years.

Apologies if I haven’t provided extensive details about the company, but my main objective is to tidy up my personal finances and understand whether personal loans and PCP agreements can be renegotiated mid-term without adverse effects.

In the past, I had a great accountant who offered valuable advice. However, after transitioning to a limited company, he assigned us to one of his senior staff members who lacks flexibility and provides minimal guidance. For instance, when I recently mentioned charging my car during a business trip, he insisted that it couldn’t be categorised as a business expense because it isn't a company car. I find this kind of thing to be unhelpful, even if I'm wrong. A good accountant should always be a bit risk tolerant.

Jim2007

https://www.boards.ie/discussion/comment/122404151#Comment_122404151

Mixing your company affairs with your personal finances is not the way to go, especially with start up. Your company loan should be in the name of the company and most likely be covered by a personal guarantee if necessary. Because if this thing were to go pear shaped and about 90% do, you need as much legal protection as possible. You need to sort this out and yes I've had a lot of experience of clean the mess up as you put it when things go wrong.

Dealing with the affairs of a company, which is a separate legal entity to you, is very different to dealing with the affairs of a self employed person and exposes you to further civil and criminal legal obligations. It is not the job of your accountant to be "risk tolerant" on your behalf, he is there to provide your company with the best professional advice and failing to do so would leave him open to legal action. Whether you decide to follow his advice is on you.

baxterooneydoody

THe car is the problem, growth of 48 percent is very healthy but no one needs a brand new electric car depreciating every day whilst a 10 year old car could do the same job. Don't let the growth of your business let you make silly decisions

n.d.os

https://www.boards.ie/discussion/comment/122404351#Comment_122404351

The car was expensive in hindsight but I was hurt in the pocket offloading the old one. It probably saves me money on running costs compared to my previous ICE car that cost me €200 less per month on finance but it's still something I want to look at now that the car landscape and economy is changing again and people will be holding onto their cars for longer. Although I’ve always driven newer cars for reliability, I’m now considering whether it is possible to extend the PCP for another year. The dealer may not want the car back in three years anyway and go for that, especially if there’s a trend toward larger batteries in electric vehicles in the future —an idea I find somewhat disagreeable, but that’s a topic for another post on a motors forum.

Just to reiterate again, I'm not struggling for money at home or in the business. I just think things are a little tighter than before and I'm sure there are plenty of people on here with good financial expertise with regards to loans and restructuring your finances.

n.d.os

https://www.boards.ie/discussion/comment/122404330#Comment_122404330

While I recognise that a personal loan might not be the most prudent choice, my business is structured in a way that allows me to close the doors tomorrow if I need to. I can continue paying off the small loan even if I were to stop operating tomorrow with other income. My company is registered at my home address and I have no business partners. This is why I have stayed away from external investors and business loans. My staff consists of self-employed sales agents and distributors. I work with a manufacturing facility who only make my products and their own and my relationship with the factory employees is akin with the owners. I help them and they help me. Additionally, I maintain a part-time employee in Ireland who is a retired family member and doesn’t rely on the job for financial support. While legal matters aren’t my primary concern and I do appreciate the accountants perspective when managing my company’s affairs, its often better to deal with the Director as their approach usually aligns closely with my own vision, particularly at the end of a financial year where we are trying to balance up our income and expenditure.

antoinolachtnai

It has nothing to do with being able to close down the company quickly. The problem is that you don’t understand either tax or finance. You are behaving like you hate money as much as you love paying tax. If you do that’s fair enough but I am assuming you don’t.

Have you discussed the challenges you faced with this accountant whom you trust?

Jim2007

https://www.boards.ie/discussion/comment/122404642#Comment_122404642

You argument concerning the loan is not valid in terms of closing down and having to pay off the loan. As the guarantor of the loan, you will be required to pay it down as if it was personal loan in any case.

n.d.os

https://www.boards.ie/discussion/comment/122405179#Comment_122405179

While I recognise the financial advantages of a business loan, I personally lean toward paying off the debt privately rather than keeping the company operational for five years solely to settle its obligations. Although I haven’t thoroughly researched the consequences of defaulting on a business loan versus a personal loan, my concern lies in the potential impact on assets tied to my home address if I were unable to repay the business loan. Opting for a personal loan allows for more flexibility in renegotiating terms with the bank over an extended period.

To be candid, my personal income from consultancy work and another business is substantial, but my limited company is still in its early stages. Managing debt in a business that experiences high demand for only five months of the year due to limited supply while handling manufacturing during the remaining months requires meticulous financial planning. Currently, we’re focused on scaling production, which prompted my investment in the business last year. Achieving a 48% increase in net profit despite the limited sales window underscores the demand for our products. However, the capital constraints prevent us from meeting that demand fully. Consequently, I’m reinvesting everything back into the business, even though it strained my personal finances a little bit coming into this year.

The ongoing cost of living crisis adds complexity to the situation, and I’m hesitant to continue running the business if the expenses become too burdensome. While many people would seek capital from investors at this point, I’ve been a sole trader for most of my life, and I’m not ready to take on that responsibility, especially considering my wife is also self employed and we have young kids that don't need that stress in their lives.

antoinolachtnai

you aren’t investing everything back in the business. You are giving vast chunks to the taxman for no good reason other than that you insist on giving yourself bad tax advice.

What you are doing is putting your business at risk and maybe the business of your manufacturing partner too.

You need to make up your mind to finance this business properly. If you think anyone will ever be impressed or sympathetic because you decided to run a manufacturing operation without proper finance in place you are wrong. It is the height of irresponsibility for a family man who has employees depending upon him to operate a business without proper financing.

Go and talk to your accountants. If they can’t help then you need to talk to your manufacturing partner and get their help to work out a plan, possibly by selling to them if you don’t have the stomach for the business yourself.

JVince

Don't use the phrase "cost of living crisis". It's NOT a crisis.

Inflation, which is good for a growing economy, got a bit heated for a while and has come back down. There's no crisis.

Never ever mix personal funds with business funds. You are paying the interest from your after tax income and the business has paid tax (or built up less forward losses) where it doesn't need to.

Banks will give funding. Probably with a personal guarantee, but at least the business will be paying the interest from pre-tax earnings and not you.

And this thought process saying a business loan has less flexibility is wrong.

You need an accountant or mentor (local enterprise office can help there) to look at the financial aspects as like many in business (including myself), you are no expert on finance. (That's actually a positive comment)

I've used an accountant since my first business way back in 1988 and whilst I disagreed at many times with what they said - the results were always in my favour, esp the advice of contributing to a pension (about to reap very nice rewards in 2 years time)

n.d.os

https://www.boards.ie/discussion/comment/122405534#Comment_122405534

Update - I'm unsure what section of this post has been edited if at all by Jim2007, but he's warned me privately about personal abuse which I don't believe i've used anywhere. I was also warned about Politics, possibly related to the light Fine Gael comment. This post may have lost some context as a result and the conversation has also moved from a personal finance question into critiquing my business. Some great advice on here from plenty of posters about consolidating my personal loans and not mixing personal loans in business for tax reasons which I hadn't considered, but it wasn't intended to be a conversation about my business or entrepreneurship so I won't me engaging in it going forward.

Yes, I hadn't considered that the business is paying tax on money I borrowed myself. The profit margins are very healthy in the industry I am in, but you are correct that come time to pay the tax man, that's where I should have considered a business loan. I'm not expert on the more intricate areas of finance. I will admit that.

I agree that finance is incredibly complicated and if my plan isn't to look for external investment, then I need to think more about what I have borrowed or what the business may or may not borrow in the future and factor that into what we can realistically do. I do feel a lot of pressure to grow it as we have around 150 stores worldwide stocking our products since we started in late 2019 and new stores and agencies are always waiting in the sidelines. Its that constant push to produce more products that creates a little bit of difficulty come production time.

One thing that I think a few commenters are missing is that this is a very young business. We have to keep reinvesting our profits to grow the business. Its either do that or bring in investors. If I just moved forward with the same production volume as last year we would make plenty of money but that's not the objective. Like all businesses, you stabilise at a point where you are happy and if we don't penetrate more of the market, people will just forget about us and move onto something else.

https://www.boards.ie/discussion/comment/122405486#Comment_122405486

It’s remarkable how many conversations on this website devolve into personal attacks. While I understand that a business loan might have been a more sensible choice than a personal loan, it doesn’t automatically label me as an irresponsible family man. Let’s cut each other some slack. Additionally, I’d like to clarify that I don’t have employees; I exclusively collaborate with sales agencies who receive commissions from me. I have one employee in Ireland, he does all of our shipping, they are semi-retired and related to me. They do it for fun and get paid well for it without any issues. Other family members step in for trade shows and busy periods and they invoice me through their own businesses.

It's possible I will consider selling the business within the next few years because I’m apprehensive about bringing on investors. It’s just part of my personality and I struggle a bit with anxiety, letting people down and imposter syndrome. Currently, my manufacturers are paid promptly to produce our products. I help their brand with design and marketing also. Interestingly, they’ve expressed interest in opening a store with me in Europe. This development has led us to explore producing more on demand and focusing on standalone stores as a business model together. The margins in a standalone store are astronomical, and I won’t have to worry about spreading myself too thin manufacturing for multiple stores across the globe. That part of what I do is incredibly difficult and I'm well aware that the way most companies do it is by selling some of their business early to an investment fund. I'm not going to do that.

I'm well aware that I need to get some good advice on where I am at and where I should eventually reign it back in the future. There will come a point where we can only manufacture so much and I will no longer want to put any more of my own money or post running cost profits back into the business.

As I mentioned earlier, I’ve been reflecting on my personal income and expenses. The demands of my business, along with other contributing factors, have left me juggling multiple responsibilities. While these may seem minor in hindsight, they don’t directly tie to the business. Maybe I should have started this post with, I took out a big car loan and two other personal loans. I'd rather I wasn't paying them but thats where i'm at.

JVince

"cost of living crisis" is a negative statement and should never be used by any entrepreneur. (I voted labour in last election 🤣)

The "personal" business loans are costing you dearly. Way above what you think.

I'd bite the bullet and look for a mentor. They are usually retired business people with huge experience and can be hugely beneficial to you - especially if you are looking at an exit in a few years.

Remember - your experience is in what you created, it's not finance and possibly not formal business management. - Both skills are easily brought in.

antoinolachtnai

It is great that you have these opportunities and I am sure you have worked very hard but now it is time to put aside designing, selling and consulting and concentrate on your actual job: you are a business man.

The problem here is not that you don’t know the intricacies, the problem is that you don’t know anything about the financing. You say you have no or one employee, but then you tell us that you are as close to your partner’s employees as you would be to your own.

Your business is rapidly growing and cash hungry. The responsibilities you hold are very significant and you aren’t really acknowledging them. You think that because you have structured the business so you can walk away with little debt that they makes the whole thing ok. It doesn’t.

You say the business is going well but then you tell us you are under financial pressure but then you say it’s not your fault you’re under pressure, it’s the economy’s so it doesn’t really count.

Now you want to induce more demand and open a chain of stores but you don’t want to take on any investment.

We could have told you at the beginning to just go to the bank and consolidate the loans in a new five year loan and all would be well. But it wouldn’t have been good advice because the bank might well have taken one look at your situation and immediately hit the brakes.

baxterooneydoody

https://www.boards.ie/discussion/comment/122404508#Comment_122404508

Do you do a lot of mileage for your business, anything under 12k a year is a cheap car paid off there and then if possible, I drive a 5k 07 with 350k on the clock and do 30k plus kilometres yearly. My business is booming but I just can't see the value in something losing thousands a year for "reliability"

The J Stands for Jay

https://www.boards.ie/discussion/comment/122404642#Comment_122404642

It sounds like you've arranged your business in exactly the opposite manner to how you want it to be organised.

n.d.os

I have two stockists here in Ireland but I primarily use my car for my other consultancy work in retail marketing. I travel around 600km per week back and forth from my office as I'm now living in the countryside. I don't want to get into buying an older car. I've always bought new cars, like them and to some extent would argue that I need one. Older ICE cars have never worked for me as I do a lot of driving.

https://www.boards.ie/discussion/comment/122405916#Comment_122405916

I don’t employ staff directly; instead, I collaborate with agents and distributors who work on commission. My business model involves outsourcing various functions, such as product design and manufacturing, to external partners. While I currently have minimal in-house staff, I remain vigilant about maintaining healthy relationships with my partners. As for my personal finances, I’m seeking advice on loans, not business expansion.

Regarding walking away, to whom am I responsible? I don’t understand why you keep bringing this up. I believe one of my strong points is being very vigilant about not letting people down. I maintain healthy relationships with my partners, although none of them rely solely on me for their income. These people change in and out all the time; it’s how my industry works. One of the biggest brands in my industry had only two employees for 5 year, and the owner, like me, used external partners to run the operation and sell his products. While that was going on he continued running his design practice in the background. Eventually he brought on a partner to manage the business more closely and work on the things, designers and marketers aren't necessarily very good at.

I believe my previous comments may have inadvertently focused too much on my company but I should have known that's where the conversation would end up going on a personal finance forum. I’ve personally decided to restructure my personal finances due to rising expenses. Just because I own a company doesn't make me immune to rising costs at home.

I have no intention of opening a chain of stores. However, my production partner has proposed opening a store and invited me to join the venture. Although we haven’t discussed specific details regarding setup or financing, I believe there’s potential for collaboration if he produces goods for me.

Your last piece of advice seems to address my question well. Consolidation might indeed be a prudent plan. Thanks again.

https://www.boards.ie/discussion/comment/122406039#Comment_122406039

I'm ambitious and passionate about my work, but I'm also worried about involving unfamiliar parties in my business, at least at the moment anyway as there is no pressure at the moment to keep doing it if I decide it is all too much in a few years. While our company is doing well, I recognise the need to seek financial expertise now.

I haven't even got into the final strand to my business which involves a healthy online business selling similar but cheaper products made in China. It's easy to run and I suppose everything just spiralled from that business. I like how that business is organised hence why I would probably like my own physical store or stores in the future instead of dealing with production for wholesale. That also opens the opportunity to sell other brands products which is way easier and more profitable in my opinion.

Jim2007

https://www.boards.ie/discussion/comment/122405396#Comment_122405396

https://www.boards.ie/discussion/comment/122406039#Comment_122406039

I would very much agree with @The J Stands for Jay you clearly don't understand the consequences of mixing your corporate business affairs with your personal financial affairs and as a consequence you are over exposing your personal financial assets in the even that the company goes pear shape.

Moved to "Entrepreneurial & Business Management" as it covers broader business issues.

n.d.os

https://www.boards.ie/discussion/comment/122406732#Comment_122406732

As I haven’t asked for business advice in my original post I’ll leave it there but it’s nice to be told by a moderator that I have no idea what I’m doing without any constructive feedback. Others offered sound advice about the tax implications of mixing personal loans with business ones which was very helpful. I’ve come to expect this on boards.ie. Nice to see you pumping out your chest and moving me on to another room to empathise your broader knowledge of my personal situation. "Broader Business Issues." 😂

Mick Tator

I'm not a mod, but from what you've written I'd agree with the Mod that said you had no idea. I saw the contradictions earlier, didn't bother. Never be unwilling to pay for professional advice, never mix your and company funds, and when you ask for advice and don't like the response, being ratty is childish.