Limited-company-loans

How do Limited Company Business Loans Work?

Business Funding Limited CompaniesWhen you’re ready to take your business to the next level, a limited company loan can give you the boost you need. Whether you’re looking to expand your operations or simply cover some unexpected costs, a loan can give you the flexibility and financial stability you need to grow your business.

Of course, taking out a loan is a big decision, and it’s important to shop around for the best terms and rates. However, with a little research, you can find a loan that’s right for your business. And with the extra cash on hand, you’ll be able to take your company to new heights.

However, over the past decade or so, many more methods of funding have revealed themselves, thanks to the power of the online world we’re all now operating within on a daily basis.

Directors will have concerns and worries about the idea of get a business limited company business loan. They may believe that it is a tiring, time-consuming and frustrating process that involves a lot of credit checks and paperwork, this clearly is not the case with a small business loan!

What is a Limited Company Loan?

A limited company loan is a type of business financing that is typically used by small businesses. The loan is based on the value of the company’s assets, and it is typically used to finance the purchase of new equipment or to expand the business. Limited company loans are generally easier to obtain than other types of loans, but they do have some drawbacks.

One of the biggest disadvantages is that the interest rates on these loans are often higher than on other types of loans. Additionally, limited company loans can be difficult to repay if the business is unable to make a profit. As a result, it is important to carefully consider all options before taking out a limited company loan.

Can I get a limited company loan?

As an entrepreneur, one of the many hats you have to wear is that of financial manager. It’s important to have a strong understanding of your company’s financial situation and be proactive in seeking out funding when necessary. One option to consider if your business is registered with Companies House is a limited company loan.

With this type of loan, you can borrow up to £500,000 and make fixed monthly repayments at a pre-agreed interest rate until the loan is paid off in full. This can be a helpful way to get the funding you need to grow your business without having to go through the traditional lending channels such as highstreet banks.

Types of business loans for Limited companies

Types of business loans for ltd companies?There are a number of types of finance for Limited Companies, loans are just one solution, directors looking for business finance should cast a wide net when looking for business loans.

The more options you look at, the easier it will be to find a solution to your cash flow problems to help your business. We understand that one loan will never suit all, so we’ve provided a solution that can help all types of business proprietors.

1. Secured Loan

Secured loans for limited companies refer to financial borrowings where the company offers some form of collateral, usually assets, as a guarantee to the lender against the loan amount. The collateral can range from real estate, machinery, to stocks and bonds, depending on the terms of the loan agreement.

The very fact that the company is limited, and hence subject to more stringent transparency and regulatory requirements, can sometimes make the borrowing process smoother. Lenders often find comfort in the enhanced visibility into the company’s operations and financial health, which, when combined with the security of collateral, can result in favorable loan terms and conditions.

Secured loans come with their own set of advantages and drawbacks for limited companies:

Pros:

  • Lower Interest Rates: The collateral backing often means reduced risk for the lender, which can translate to lower interest rates for the borrower.
  • Higher Borrowing Limits: With assets as security, lenders might be willing to extend more significant amounts than with unsecured loans.
  • Flexible Terms: Due to the reduced risk, lenders might also offer more flexible repayment terms or conditions.

Cons:

  • Risk of Asset Seizure: If the company defaults, the lender has the right to seize the collateral to recoup their money.
  • Potential Impact on Credit Rating: A default or even certain borrowing conditions can adversely affect the company’s credit rating.
  • Restrictions and Covenants: Some secured loans come with covenants or restrictions that limit the company’s operational flexibility.

2. Unsecured Business Loan

Unsecured loans for limited companies are financial instruments that provide funds without the need for collateral. Unlike secured loans, where an asset backs the loan amount, unsecured loans rely primarily on the borrower’s creditworthiness and the financial stability of the company.

These types of loans can offer a quick injection of capital without tying up company assets. Given that the lender doesn’t have the safety net of collateral, these loans often come with terms and conditions reflecting the higher perceived risk involved.

The nature of unsecured loans brings about specific advantages and challenges for limited companies:

Pros:

  • No Asset Risk: The company can borrow without the threat of losing assets in case of a default.
  • Simpler Application Process: With no need for collateral evaluation, companies might experience a smoother and faster loan application process.
  • Enhanced Flexibility: Typically, unsecured loans don’t come with as many restrictive covenants, granting businesses greater operational freedom.

Cons:

  • Higher Costs: Due to the inherent lender risk, interest rates on unsecured loans can be significantly higher than their secured counterparts.
  • Lower Loan Amounts: Lenders might be more conservative in the amount they’re willing to lend without collateral as a safety net.
  • Stricter Qualifications: Lenders might set higher benchmarks for credit scores and financial performance, given that their assurance is primarily the borrower’s creditworthiness and financial stability.

3. Short Term Business Loans

Short-term business loans are financial instruments designed to provide companies with quick access to capital, typically for periods ranging from a few months to about a year. These loans are particularly useful for addressing immediate needs or taking advantage of timely opportunities.

Whether it’s to manage cash flow gaps, handle unexpected expenses, or capitalize on a sudden business opportunity, short-term loans can be a lifeline for businesses that need funds without the long-term commitment of traditional loans.

Opting for short-term business loans comes with its distinct set of pros and cons for companies:

Pros:

  • Quick Access to Funds: Given the short nature of the loan, the approval and disbursement process is often faster compared to long-term loans.
  • Less Interest Over Time: Even if they come with higher interest rates, the actual interest paid might be less due to the shorter loan duration.
  • No Long-term Commitments: Businesses aren’t saddled with debt for extended periods, allowing for more financial flexibility in the future.

Cons:

  • Higher Interest Rates: Typically, short-term loans have higher annual interest rates compared to their long-term counterparts.
  • Frequent Repayments: Businesses may need to make weekly or even daily repayments, which can be strenuous on cash flow.
  • Potential for Debt Cycle: If a business continually relies on short-term loans without addressing underlying financial issues, it can get trapped in a cycle of perpetual borrowing.

What are the benefits of limited company loans?

Limited company loans present a myriad of advantages for businesses, particularly when it comes to financial flexibility and strategic growth. The distinct structure of a limited company, which differentiates the business as a separate legal entity from its owners, inherently reduces the risk for lenders.

As a result, these lenders often extend more favourable loan terms and conditions, as they are reassured by the fact that the company’s assets, rather than the personal assets of the owners, would be collateralised in case of any loan defaults.

Several key benefits arise from opting for limited company loans:

  • Enhanced Borrowing Power: Limited companies often have access to larger financing amounts than sole traders or partnerships, allowing them to undertake more ambitious projects or expansions.
  • Tax Efficiency: Interest payments on such loans can often be accounted for as business expenses. This classification can effectively reduce a company’s taxable profit, leading to potential savings on corporation tax.
  • Asset Protection: The business assets of the limited company are usually what’s at stake in case of non-repayment, safeguarding the personal assets of the company’s shareholders or directors.
  • Flexible Repayment Schemes: Many lenders offer adaptable repayment options for limited companies, recognizing their variable cash flows. This can assist businesses in managing their financial obligations more efficiently.
  • Improved Credit Standing: A well-managed loan can enhance the credit profile of the limited company, potentially making future borrowing more straightforward and possibly at more favourable rates.

Is my business eligible for a limited company loan?

A Limited Company can apply for a loan if you meet the following criteria:

  • Your business is registered and trading in the United Kingdom
  • You (the business owner) are over 18 years of age
  • Your business has been active for at least 6 months with a standard monthly turnover of £5,000 or more

Can a new limited company get a business loan?

Can a new limited company get a business loan? The answer is yes, as long as the company has been trading for at least six months and has a minimum monthly turnover of £5,000. It may be difficult for new limited companies to find funding because lenders will see that startups are a risky investment. New companies are often seen as risky by lenders due to having a limited trading history or lack of capital.

However, we work with a select group of lenders who specialise in providing startup funding for new limited companies. So, if your limited company has been trading for between 6 – 24 months, you may want to consider a startup business loan instead.

How can a limited company loan help my business?

Limited company loans are the perfect way to help out any small business that needs a financial push in the right direction. These types of loans are classed as unsecured, meaning there is no danger of losing precious assets if you are unable to make repayments. Unsecured loans offer business owners uncompromised flexibility, and borrowing is kept simple with tailored payment plans which feature competitive interest rates.

You may question what can a business loan be used for? Well the extra cash flow can help in many different ways, such as tiding your business over when in a low sales period, or boosting business growth through the purchase of new equipment or machinery. The options you have in regards to how you’ll use the money are pretty much endless:

  • Help make corporation tax payments more manageable
  • This type of loan could help with business growth
  • Stay in control of decisions that affect your business
  • Receive finance in just 24 hours
  • Ongoing support from a company that wants to see you succeed

Do ltd company loans require personal guarantees?

As the director of a limited company, you may be asked to sign a personal guarantee as security for your company’s borrowing. This guarantee is often requested by lenders who are offering finance to businesses that aren’t providing collateral, or are perceived as ‘higher risk’. In the unlikely event your business was to default on loan repayments, you as the director would become personally liable for the balance thereof.

However, personal guarantees are not always required for limited company loans – it depends on the lender and the amount of money borrowed. If you are considering taking out a loan for your business, be sure to ask if a personal guarantee will be required.

F.A.Q’s 

What are Limited Company Loans?

Limited Company Loans are funding designed to work with Limited Companies, with the responsibility for repayment based with the company and not the director.

Do directors need to offer security with a loan for a Limited Company

Directors do not need to offer security, a debenture maybe needed from the company.

How much can the Limited Company borrow?

A company can borrow between £5,000 and £200,000 without the need for security.

How do I apply for a limited company loan?

Applying for a limited company loan is so quick and easy to get started, follow these simple steps to your application:

Step 1:

Applications can be processed online by clicking on “Get a Quick Quote”. The following information will be required:

  • The registered name of your Limited Company or trading name
  • Company registration number
  • Registered office address
  • Your businesses monthly turnover
  • Loan amount, how much is required

Step 2:

The next step will be a request for some personal details, including:

  • Full name
  • Your contact number
  • Email address so we can send you out terms and conditions

Step 3:

You will need to agree to the terms and conditions.

Step 4:

We will review the application and assign an account manager to your application. If it is approved, we will let you know within 24 hours.

Step 5:

Both parties need to sign the agreement before the loan can be paid out directly in to your bank account. Our turnaround of completion usually takes between 2 – 5 days from recipe of application form.

Lee Jones Profile Image
Business Finance Expert at PDQ Funding

Lee Jones is a seasoned Business Finance Specialist with over two decades of invaluable experience in the financial sector. With a keen eye for market trends and a passion for helping businesses thrive, Lee has become a trusted advisor to countless organizations seeking to navigate the complexities of finance.

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