Funding a business

Discussion in 'Loans & Mortgage Brokers' started by srirang, 5th Nov, 2015.

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  1. srirang

    srirang Well-Known Member

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    Melbourne
    Hi all,

    I've got some funds sitting in my offset account against my PPoR. I'd like to use some of the funds to start a business.

    I've got the accountant to put the business structures in place. When it comes to funding the business, he has suggested (and I agree) that the best way to do it would be to loan the money to the business entity and put a formal loan contract in place and charge market interest rate for the loan.

    What would be the best way to keep the business loan separate from my offset?

    1. Setup a new account and transfer funds from offset to the new account
    2. Pay the funds into the PPoR loan and then split that
    3. Something else?

    My broker is on holidays till next week, so just wanted to get a head start on how to structure it. Any advise is appreciated.

    My PPoR is with Macquarie.

    Thanks
    Srini
     
    srirang, 5th Nov, 2015
    #1
  2. tobe

    tobe Well-Known Member

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    New loan with macquarie to get some equity if possible (with or without the corresponding reduction in the current PPOR loan/redraw amount available).

    Trouble is, if you state the funds purpose you might have trouble. perhaps at this stage you are just considering future possible investment in shares and or property?
    Then open up a business account and transfer the funds from the new loan into there. Draw up a loan agreement between yourself and the business.

    I did the same recently, the accountant said I could have the business pay back the loan over a shorter term, or could have it interest only, depending on the tax situation after the first year.
     
    tobe, 5th Nov, 2015
    #2
  3. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    As Tobe states, if you try borrow the money, lenders will ask what it's for and this will only cause pain.

    You could split your existing home loan into two portions. One split equivalent to the amount you want to put into the business, the other split for the balance. Transfer money from the offset account into the 'business split' so it's fully paid off (make sure Macquarie doesn't close the loan at this point). Then you can draw the money out of the business split for your business purposes. As all of the money from that split is being used for the same purpose it should be fairly simple for your accountant to manage it.

    Make sure you run this by your accountant first.
     
    Peter_Tersteeg, 5th Nov, 2015
    #3
  4. srirang

    srirang Well-Known Member

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    Great. Exactly what I was after. Thanks guys.
     
    srirang, 5th Nov, 2015
    #4
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A business is not a legal entity. Do you mean a company has been set up? If so you should lend your money via a written loan agreement.

    Any money you take from your offset will result in you paying more interest which won't be deductible. Ideally you would borrow more money against your home, separate account, and then you would onlend these funds to the company at a higher rate. You will receive income, but this is cancelled out by the interest paid.

    Consider taking security for your loan too.
     
    Terry_w, 5th Nov, 2015
    #5