How could business debt impact my personal life?

[gulagman145]

Hey all,

I have an idea that will require funding to pursue. I am thinking about getting a small business loan, but I don't want to be drowning in debt if my idea should fail..

I guess what I'm getting at is "what is the best way to protect my personal finances/assets/income/wages from debt incurred in a business venture?"

I've heard good things about forming an LLC, but I don't know if these things are true or if that is the best route.

Thanks!

Zack

[vangogh]

Welcome to the forum Zack. A corporation is the best way to protect your personal assets, however that first L in LLC stands for limited. One of our members has put together a really good resource about LLCs (http://www.limitedliabilitycompanycenter.com/). There's a bit of information about S Corps too, though it's mainly an LLC resource.

I think an LLC will work for what you need, but I'm pointing you to the resource above since it will provide better answers than I could.

[Steve B]

An LLC may be a good idea for you for many reasons, but you will still have to be personally liable for the initial debt you incur. Anyone that loans you money knows the that new businesses fail more often than succeed. They aren't going to loan you money unless you sign that you are personally liable for the debt and that you have proof that you are capable of paying it back.

[BNB]

What you want is 100% risk free capital to go and start a business venture? Let me know when you find such a source!

I'd suggest a couple: Your parents, your friends.

[Dan Furman]

Hey all,

I have an idea that will require funding to pursue. I am thinking about getting a small business loan, but I don't want to be drowning in debt if my idea should fail..

I guess what I'm getting at is "what is the best way to protect my personal finances/assets/income/wages from debt incurred in a business venture?"

I've heard good things about forming an LLC, but I don't know if these things are true or if that is the best route.

Thanks!

Zack

I roll my eyes every time I see this stuff.

"I want to start a business with no risk".

Easy answer: It doesn't exist.

[Fulcrum]

No lender out there will loan you money under those terms. You can protect yourself to a certain extent, but you need to understand that you will need to personally guarantee every penny you receive - plus lost interest and collection fees in the event of default on an under collateralized (made up word here?) loan.

[Business Attorney]

... I am thinking about getting a small business loan, but I don't want to be drowning in debt if my idea should fail..


You will have to personally guarantee any loan to your business unless you borrow money from a friend or family member who is willing to let you personally walk away from the failing business and leave them holding the bag. Good luck with that. No bank or other institutional lender will do that.

Any LLC or corporation can protect you from trade debt, contracts and the like if the other party deals with the entity and does not require a personal guarantee. However, even then you are not completely safe. I have had clients who have been sued personally for debts of their business entity even though they did everything right. Even though they could probably win a "piercing the corporate veil" lawsuit, they either have to handle their case pro se (that is, without an attorney) or spend more on attorney fees than they would paying off the claimant.

You have to weigh the risks against the rewards when you launch a business. Just be realistic about the downsides. The potential downsides do not simply go away.

[D-Dave]

An LLC may be a good idea for you for many reasons, but you will still have to be personally liable for the initial debt you incur. Anyone that loans you money knows the that new businesses fail more often than succeed. They aren't going to loan you money unless you sign that you are personally liable for the debt and that you have proof that you are capable of paying it back.

^This.

The short answer is you can't protect yourself, you are responsible.

[vangogh]

Just to add I agree with everyone else. It's going to be your business so you ultimately have to take the risk and you're the one responsible. That's part of what it means to own a business. For some reason I glossed over that you were thinking about a loan. No one is going to give you a loan risk free to you. It's going to be as risk free as possible for whoever loans you the money.

Part of going into business is believing in your ideas and yourself. I'm sure a lot of us here could share stories about not being 100% sure we'd be successful, but we believed in ourselves and what we wanted to do enough to take a chance. It's understandable not wanting to risk what you have, though in that case I wouldn't look into getting a loan. I'd think of ways you can bootstrap the business. Alternatively you can seek financing from family and friends or look to take on a partner who supplies the capital while you supply the work. There are lots of ways to start a business without a loan.

[Harold Mansfield]

Hey all,

I have an idea that will require funding to pursue. I am thinking about getting a small business loan, but I don't want to be drowning in debt if my idea should fail..

I guess what I'm getting at is "what is the best way to protect my personal finances/assets/income/wages from debt incurred in a business venture?"


An LLC is a good idea to protect your home and things like that, but that still won't absolve you from responsibility from debts. You will still owe the money.
There is no success in this world without risk. If you walk into anyone's office and say that you aren't willing to take a risk with your own money, no one will touch you.

Successful Entrepreneurs give it everything they have because they believe in what they are doing. What you seem to be describing is the "I just want to put a toe in and see if I get lucky" method. That has never worked.

That being said, it's still smart to separate your business assets from your personal assets. Any decent business attorney can guide you in the right direction as to what is right for your situation.

[huggytree]

so you want to get a loan, if you fail in business you don't want to pay it back

gee id love to be the bank that gives you that loan.....you've planned on screwing them before you walk through the door

part of starting a business is taking risk with your money...if you fail you lose....if you succeed you could be rich....some people fail over and over...


make sure to ask the same question to the banker when your sitting across from him asking him for the loan ''do I have to pay this back if I fail?''

[tinker9696]

Besides any loans to bank or creditors what about the lease. If you fail and are unable to fulfill the lease agreement and have to file for bankruptcy does owing the land lord effect your personal credit. My business is a Corporation & LLC. I thought one of the purposes of becoming a corporation is to protect your personal assets. am I incorrect?

[Fulcrum]

Besides any loans to bank or creditors what about the lease. If you fail and are unable to fulfill the lease agreement and have to file for bankruptcy does owing the land lord effect your personal credit. My business is a Corporation & LLC. I thought one of the purposes of becoming a corporation is to protect your personal assets. am I incorrect?

Though corporations and LLC's limit liability, lenders will almost always require a personal guarantee. Often, this will also apply to leases. This is one of the only means of protection that the financial body has to recoup its loss in the event of a business bankruptcy.

[thebizdude]

Harold is right...

LLC a good way to go. Depending on your idea, the best debt free start ups would be around private funding from investors that you know. There may be venture capital out there but do not expect a lot of money from one place, and even if you got the capital - its not going to be that easy. Ideas fail because they are not well assembled, or the idea creation energy ceases and the invested (yourself) give under the exhaustion while starting it up.