Business loans for limited companies

Here are some examples of how limited company loans work.

Example A: Let’s say you’re the proud company director of a limited company. You’re putting together your end of year budgets, and you’ve spotted a short fall. Unless a client kindly pays their invoice early, you’re going to be stuck with negative working capital in the month of February.

To navigate this cash flow shortage, you could take out a working capital loan. You apply online, the lender considers your application and if you’re approved, they forward the funds. How you repay those funds varies from lender to lender, but if you took out a short term working capital business loan, you’ll likely repay in monthly instalments over the course of several months to a year.

Example B: Now imagine you own a chain of restaurants. You’d like to refresh your customer-facing premises, but the costs of a renovation would eat into your working capital, hindering your ability to purchase ingredients and pay staff.

In this instance, you might consider a bridging loan. A bridging loan is a secured short term loan. You could use one of the restaurants as security for the loan, use the loan to refurbish your chain of restaurants, and then pay off the bridging loan plus interest and fees in a few months once you make up the money in sales.

All financing options have drawbacks and risks to watch out for, here are some of the ones you should consider before taking out a limited company loan.

Debt spiral

A debt spiral is when a business becomes increasingly reliant on debt and the debt becomes unmanageable, growing larger in size with compounding interest rates.

Overexerting yourself financially

It’s important to be careful not to take out too much debt. Overexerting your business financially beyond its means can lead to loss of control and even insolvency.

Interest and fees can eat into your profits

Loans usually come with a mixture of fees and interest rates, which can eat into your profits, particularly if you lose sight of the overall cost of financing.

Possible loss of assets

If you miss payments or default on a loan, it’s possible you may lose your assets through possession or repossession. This can occur whether or not you take out a secured loan. 

Maybe, that depends a lot on your agreement with the lender. As a limited company, there is some degree to which you are protected by limited liability, but this does not cover you entirely. If you sign a personal guarantee, you are certainly liable for the loan. If you did not sign a personal guarantee, that does not necessarily mean you are not liable. If this is a concern for you, consider discussing this with the lender before entering into an agreement.

Much like the businesses themselves, loans for limited companies come in all shapes and sizes and offer a range of financial relief for all types of companies. Designed to help limited companies grow, a loan for limited companies is an unsecured sum of money lenders offer for any company registered under Companies House. 

Whether or not you can get one will depend heavily on the unique circumstances of your business, however, in general, you will likely be able to find a loan if you are over the age of 18, if your company is based in the UK, and if you’ve been trading for at least 6 months. Whether or not that loan will have favourable terms is another question, one our expert team could help you get to grips with.

The only way you can apply for a limited company loan is to be registered with Companies House as the lender will have to check beforehand. If you’re registered, you’ll be able to complete an online form and apply for the loan by sharing some basic information about your business. The lender you’ve chosen will then review and decide whether to grant your business loan.

Yes, as limited companies can be either private or public, both types of companies are eligible to receive loans. The difference between private and public limited companies is that private companies don’t publicly share trade shares and are limited to a maximum number of shareholders whereas public limited companies trade publicly on the stock exchange. 

Private limited companies can also accept loans from their own shareholders or find a lender and apply.

In short, no your business doesn’t need good credit to apply for a limited company loan but it might affect your ability to apply with traditional high street lenders and to get favourable terms. Businesses with bad credit may be restricted by how much they can borrow, will likely receive high interest rates, and lenders can apply their own terms to the loan once it’s granted. 

The minimum credit score for a loan like a limited company loan is generally between 640 to 700 which is an average score. Before granting a loan, lenders will review any outstanding debts and other loans your business has against its name as well as regular outgoings. They will then calculate the risk of lending your business the money before either rejecting or granting your loan request.

If you’ve just started up a limited company and want to apply for funding, you'll need to have a great personal credit score, an impressive business plan, as well as ample collateral to qualify for a first-time business loan from a bank. Lenders will be looking for predicted evidence your business will thrive before committing to giving your company a loan.

Lenders can offer your limited company an unsecured loan if your business doesn’t have any money or cash flow. We’ve previously written a guide to unsecured business loans and why they may be the most suitable option for your company. There are a wide range of lenders to choose from with unsecured loans so it may work out to be the best option for your limited company.

Some lenders offer no-PG options, but they may come with stricter requirements or higher rates.

Some lenders release funds within 24 hours of approval, depending on the loan type.

Usually no - unless you sign a personal guarantee or miss repayments.

It’s possible, but options may be limited. Some products require at least 6-12 months of trading history.