When it comes to growing your business, securing funding can be the key to unlocking new opportunities. But for many small businesses in the UK, finding the right loan provider and getting approved is often a huge challenge.
Navigating the world of business finance can be complex, with numerous options and varying criteria that lenders use to assess loan applications. Understanding these intricacies is crucial for limited companies looking to secure the funds they need to thrive.
In this guide, we’ll provide a comprehensive overview of loans for limited companies. Discover what they are, if you’re eligible, and what you need to do to get approval.
What is a limited company loan?
A limited company loan is a financial product designed specifically for businesses that are registered as limited companies with Companies House. Unlike personal loans, these are tailored to meet the unique needs of businesses, whether for expansion, managing cash flow, or investing in new projects.
The main benefit of a limited company loan is that the borrowing is done under the company’s name, rather than an individual director, That offers a layer of financial separation and protection between the business and its staff.
What are the eligibility criteria for a limited company loan?
Before applying for a limited company loan, it’s essential to understand the typical eligibility criteria lenders frequently consider.
Company’s financial health
Lenders will assess the financial stability of your company, including profit and loss statements, balance sheets and cash flow forecasts. A history of profitability and positive cash flow can increase the chances of you getting approval.
Credit history
Both the company’s and directors’ credit histories are scrutinised. A strong credit rating can significantly impact the terms of the loan, including interest rates and repayment schedules.
Business plan
A detailed business plan outlining the purpose of the loan, how funds will be used and the projected impact on your company’s growth is crucial. Lenders want to see a clear plan of how you’ll use the money and how you will repay the loan.
Trading history
Companies with a longer trading history (typically at least two years) are seen as less risky compared to startups. However, there are options available for newer businesses – although these often come with more stringent conditions.
Do limited company loans require personal guarantees?
A common question among business owners is whether personal guarantees are required for limited company loans. The answer depends on the lender and the amount you wish to loan.
Personal guarantees
Many lenders require directors to provide personal guarantees, especially for higher loan amounts or if the company lacks substantial assets. This means that if the company defaults, the directors’ personal assets could be at risk.
Unsecured loans
Some lenders offer unsecured loans, which do not require personal guarantees or collateral. These loans usually have higher interest rates and lower borrowing limits.
Secured loans
Alternatively, secured loans require collateral, such as property or equipment, reducing the need for personal guarantees. These often come with lower interest rates due to the reduced risk for the lender.
Type of loans available
Term loans
A lump sum paid back over a fixed period with regular repayments. These are ideal for significant investments like purchasing equipment or expanding operations.
Revolving credit facilities
Similar to an overdraft, these allow your business to draw, repay and redraw funds up to an agreed limit. Perfect for managing cash flow fluctuations.
Invoice financing
Advanced against unpaid invoices, providing immediate cash flow without waiting for clients to pay.
Asset financing
Loans secured against company assets, such as machinery or vehicles, useful for acquiring high-value items without upfront costs.
Application process
The application process for a limited company loan typically involves the following steps:
- Preparation – Gather all necessary documents, including financial statements, business plans and identification documents for directors.
- Research – Compare different lenders and loan products to find the best fit for your company’s needs.
- Application – Complete the application form, providing detailed information about your business and its financial health.
- Approval – If approved, review the loan terms carefully before signing the agreement. Make sure you fully understand the repayment schedule, interest rates and any additional fees involved.
Get a limited company loan today from Funding Triangle
Understanding what’s involved with securing a limited company loan can seem daunting at first. But with the right knowledge and preparation, it becomes a manageable task, and a practical way to grow your business.
If you’re considering a limited company loan, Funding Triangle can help. We provide unsecured loans ranging from £10,000 to £500,000 with interest from 4.8%. With over 120 lenders, you can get same-day approval and receive funding in your bank account within 24-48 hours.
