Limited company business loans
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A limited company loan could provide the funding your business needs to take it to the next level or cover short-term financial challenges.
What is a limited company business loan?
Limited company loans are a type of business loan designed specifically for businesses registered as limited companies with Companies House. They may also sometimes be referred to as limited company business loans or limited business loans.
When a business is set up as a limited company, its finances are separate from the personal finances of whoever is running the business. This is different to if you’re set up as a sole trader, where a business owner can directly enjoy the profits a venture makes, but also has personal responsibility for its debts.
How do limited company loans work?
Limited company loans are similar to other loans, in that any funds borrowed must be paid back, plus interest, in regular instalments over a set period of time.
However, the way limited company loans are set up means it is the business which is usually liable for making repayments and the loan overall, and not the business owner. This protects your personal finances and assets if repayments aren’t made by the business. One exception may be if you had to provide a personal guarantee to get the loan, which would make you personally liable if the loan isn’t repaid by the business.
What types of business loans can limited companies get?
Limited company loans may be either unsecured or secured.
Unsecured limited company loans
With an unsecured business loan, you don’t have to offer any collateral or security for the loan. This means assets are not at risk of being taken by the lender, and can make applying faster and simpler.
However, it is more likely you’ll be asked for a personal guarantee.
Secured limited company loans
Secured business loans do require that an asset is put forward as security for the loan. This may be an asset from your business, such as your premises or machinery, or it may be something you own personally.
The reassurance this gives lenders means interest rates may be slightly lower and you’re allowed to borrow more. However, if loan repayments aren’t met, that asset is at direct risk of being lost to the lender.
Pros and cons of limited company business loans
Advantages
- It can sometimes be easier to access funds as a limited company.
- Your business is liable for the loan, not you, which could protect your personal assets if repayments are not made.
- Interest rates may be lower because lenders consider limited companies less risky.
- You may be able to borrow more for similar reasons.
- Funds can be used for various purposes, including expansion, help cash flow or cover unexpected bills.
- Making payments on time and in full could boost your business’s credit score.
- Interest on the loan may be tax deductible, which could lower the cost of borrowing.
Disadvantages
- Your assets could be at risk if you’ve given a personal guarantee or used your own assets for a secured loan.
- Missing repayments could damage your business’s credit score.
- There are time-costs and charges associated with setting up as a limited company.
- There are ongoing administrative and reporting obligations involved with being a limited company.
Is my business eligible for a limited company loan?
The basic eligibility criteria for any limited company loan is that your business is set up as a limited company, you are at least 18 and your company is UK-based.
In addition, there will be other qualifying criteria typically in respect of length of trading history, business turnover and credit score. Exact requirements will differ between lenders.
Both your personal and business credit score may be taken into account. The lender may also ask to see a clear business plan, along with recent accounts, to get an overall picture of your company’s finances and prospects. Essentially, the provider will want to be confident that your business can repay the loan.
How to get a loan for a limited company through NerdWallet UK
Our aim is to help you find a business loan that suits your needs, and we can do this without affecting your credit score. In three short steps, we can highlight the best limited company loans for you from our panel of providers. They’ll also be the ones that offer the best chance of acceptance.
- Answer some brief questions about you and your business, so we know what you need.
- Get matched instantly with the business loans from our panel of lenders you’re most likely to be eligible for.
- Compare loans and apply to your chosen provider, with forms pre-filled using the details you’ve provided already.
» COMPARE: Find business loans for limited companies today
Limited company business loan FAQs
Yes, limited companies that are just starting out, or have only just taken on limited status, may be able to take out a standard limited company loan or perhaps a start up business loan.
The amount that can be borrowed through a limited company loan could range anywhere from £1,000 to £1 million, or maybe higher. Ultimately, the amount your limited company can borrow will depend on the lender and a combination of factors, such as turnover, credit score and the type of loan you want. Secured loans tend to offer higher borrowing amounts.
Yes, limited company business loans are available to private businesses, where ownership of the company is split into shares privately owned by shareholders, rather than shares being publicly traded. This is a structure often adopted by start up businesses.
Yes, it may be possible for a business with bad credit to get a limited company loan, though there will be fewer options available. Interest rates will probably be higher and other eligibility criteria are likely to be stricter. It’s also more likely you’ll need to provide a personal guarantee or security for the loan.
» MORE: Bad credit business loans
Limited company loans are often easier to get than sole trader loans. This is because the separation between owner and business, having to register with Companies House, and the greater amount of information available publicly means limited companies are often considered less risky by lenders.
» MORE: Sole trader or limited company?
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