Limited Company Loans

Limited Company Loans

If you're a business owner looking to expand your company, you may be considering taking out a limited company loan. With various options available, it can be challenging to know which loan is right for your business. In this article, we'll explore the different types of limited company loans and provide tips on how to choose the best one for your company's needs.

What is a limited company loan?

A limited company loan is a type of financing that is specifically designed for businesses that are registered as limited companies. These loans can be used for a variety of purposes, such as expanding your business, purchasing new equipment and hiring additional staff.

Is my business eligible for a limited company loan?

To be eligible for a limited company loan, you need to:

Before applying it's important to ensure that you meet the necessary criteria which includes factors such as your company's credit score, financial history, and revenue.

How can a limited company loan help my business?

Limited company loans provide business owners with the flexibility to use the funds for various purposes. They can offer an accessible borrowing option with fixed repayment plans and competitive terms.

Limited company loans are a simple and effective way to boost your business growth or manage cash flow during tough times. Whether it's investing in new equipment or machinery or covering unexpected expenses, the options for utilising these loans are endless.

By providing financial assistance, these loans can make it easier for your business to meet it’s spending obligations and with a variety of specialist loan options available, you can choose one that best fits your needs and budget, allowing to help you stay in control of your business decisions.

With the right lender and type of loan, you can access the capital you need to grow your business and succeed.

How does a limited company loan differ from a sole trader loan?

A limited company loan differs from a sole trader loan in several ways. Firstly, a limited company loan is given to the business rather than the directors.

As the company is a limited entity, there is limited liability for business owners when it comes to debt. The liability for the loan will fall to the business rather than the owners.

Although it is worth noting that lenders may request personal guarantees when approving applications for limited companies.

A sole trader does not have limited liability, the loan is given to the company owner meaning the owner is fully liable for any outstanding debts.

The amount of funding available to limited company will depend on the strength of the company as well as the evidence of serviceability for the loan being applied for, as well as other factors. A sole trader business is assessed in a similar fashion, however the type of loan document a limited company will need to sign can be different to a sole trader loan because of the regulation under the Consumer Credit Act 1974 and Consumer Credit Act 2006.

In addition, as it is a legal requirement for limited companies to file company accounts at Companies House, there is more official information available to lenders to allow them to assess eligibility and affordability. However, a sole trader will still need to provide accounts and other financial information for assessment when applying for a loan.

Will my credit score affect my limited company loan application?

Yes, your credit score will be taken into consideration when applying for a limited company loan. Lenders will typically check the credit scores of both the business and its directors before approving a loan.

A good credit score can increase your chances of being approved for a loan and may also result in more favourable repayment terms and interest rates. Although there are some bad credit lenders available making it easier for you to access funding if your credit score could be improved.

It's important to maintain a good credit score by paying bills on time, not taking on too much debt and being a responsible borrower.

Do limited company loans require personal guarantees?

Unsecured limited company loans are available for businesses that require financing but may not have or do not want to offer collateral or business assets.

When applying for unsecured loans you are not using any assets as security and your application will be assessed based on credit score, financial stability and affordability assessments.

However, lenders may require a personal guarantee or guarantees from the director(s) of the company as security for the loan.

This means that if the business is unable to make loan repayments, the director(s) would become personally liable for the outstanding balance. While this may seem like a risk, it can be a useful option for businesses that need funding but don't have assets to offer as collateral.

Ultimately if you have no concerns about the financial stability of your business then providing a personal guarantee and indemnity should not be a negative thing. If you do have concerns about providing a personal guarantee then you should think about whether applying for an unsecured loan is the right thing to do.

Whilst RLA Capital cannot provide financial advice, RLA would recommend seeking independent legal advice prior to entering in to any agreement if you are not sure about what you are signing.

Do I need a business account to get a limited company loan?

Yes, having a business account is almost always a requirement for obtaining a limited company loan. Lenders will want to see that your business has a separate account for financial transactions and that it is being managed responsibly.

It's important to keep accurate records of your business finances and to avoid mixing personal and business funds.

If you don't already have a business account, you can open one with a High Street Bank or with an online banking service.

Can a new limited company receive business financing

Most lenders will prefer that your company has been registered and trading for at least 12 months, and have at least 12 months filed accounts with Companies House. If you have been trading for less than 36 months, you will be classed as a new start or start-up business. Some lenders can find it difficult to gauge business financial stability and carry out affordability assessments due to little or no trading time, which means it can be harder to be approved, borrowing amounts tend to be lower and interest rates can be higher.

There are however some lenders who specifically cater for start-ups and are aware of the challenges involved.

Start-up loans will come a range of forms, either from government sources, grants, angel investors or alternative P2P lenders.

Although your options will be more limited than for those that have been trading for over 36 months, there are still options available.

Updated: May 4, 2023