Business Loans for Limited Companies: Types, Benefits, And How to Apply

Limited companies may also need a quick injection of cash for a variety of reasons. Among them some are business expansion, marketing, buying new inventory or equipment, hiring people and tiding over tough times when there is a shortfall in working capital. Business loans for a limited company come in all shapes and sizes. They can be small and large. It depends on your business needs which one suits you fine. Bear in mind limited company loans are no different from a business loan available for the self-employed or a private limited company. There could be additional strings attached.

In order to secure a limited company loan, you will have to meet the following eligibility criteria:

• You must have been running your business for at least 2 years.
• A monthly turnover should be at least £10,000. A few lenders accept applications even if it is just £5,000.
• The director of the company should be a homeowner.

In addition to that, you will also need a good business credit rating. As your business has a separate identity, a business credit report will also be maintained. If your score is between 80 and 100, the possibility of getting an affordable loan deal is quite high.

Your lender will also look at your repaying capacity. Because you are taking out a loan in the name of a business, your business profitability will also be assessed to ensure that all payments will be made on time.

Your personal credit score is also crucial

Though your lender will check your business credit rating, they will also peruse your personal credit rating. Both credit scores can influence their decision to lend you money. Most of the lenders will not approve your application if your credit rating is less than perfect, some lenders do.

You should consult a business finance broker while taking out a limited company loan. They will carefully check your credit rating and business profitability before arranging the right lender for you. Even if your credit score is not so stellar, they will help introduce you to a couple of lenders whose eligibility criteria you meet. It lowers the chances of rejection.

Some lenders will ask you to give a personal guarantee

Although you are taking out a business loan in the name of your company, your lender may ask you to give a personal guarantee. It means the directors of the company are agreeing to the clause that they will be personally liable to settle the debt if the company fails to pay it off. Your personal assets are at risk if your business struggles to settle the debt on time. Instead, you should have a backup plan in case your business struggles to generate enough profits to clear the debt.

Types of loans for limited companies

Here are the types of loans you can seek if you need money as a limited company:

• Secured business loans

Secured loans are mainly sought after when you need a large sum of money. The repayment length of these loans can be at least five years. They are called secured loans because you will have to put down collateral, which will be your business asset. Remember that a depreciating asset is not used as collateral. The value of the asset you secure against the loan must be more than the size of the loan so your lender can get their money back if your business defaults.

• Secured loans carry lower interest rates because your lender has the right to repossess your business asset to liquidate and obtain their money back.
• Secured loans are paid down in monthly instalments over a long period of time, so monthly payments will be small which does not affect your working capital.
• They are easy to qualify for as compared to unsecured business loans.
• They let you access a large amount of money because of a secured asset.
• Secured loans are risky if you make a default. Not only will you lose your business credit score, but you will also lose your business asset.
• It can be challenging for new businesses to obtain secured loans. Your company must be at least two-years-old in the business.

Secured loans are usually ideal when you have to expand your business. Make sure you do not borrow more than your business’s repaying capacity.

• Unsecured business loans

Unsecured business loans come in handy when you require a small amount of money. The good thing about these loans is that they are not backed by collateral, so in case you make a default, you will not lose your business assets. However, under no circumstances does it insinuate that you should miss the payment.

• Unsecured business loans are easy to qualify for as they involve fewer formalities.
• There are chances of applying for these loans even if your credit score is bad.
• Unsecured loans are paid back in a shorter repayment period, so the total interest you pay over time is not as high as that of the secured loan.
• They come with higher interest rates.
• Your lender may restrict the loan amount because of the high risk involved in lending you money.

A few lenders provide limited liability loans. These loans are exclusively aimed at limited liability companies. You get secured or unsecured loans even if you apply to these lenders. Such lenders use the term limited liability loans to make companies like yours understand the availability of funding from them.

Steps to apply for a limited liability loan

Before you apply for a limited company loan, you should check your credit rating. Make sure there are no errors. Consult a business loan broker if you cannot decide which lender to apply to. You will have to provide your lender with the following information:

• Your registration number
• The number of years you have been in your business and the years you have been trading shares
• Annual turnover
• The number of directors

After getting all these details, your lender will determine how much money you should be lent.

The final word

You must have a good credit history to qualify for limited company loans. Though a few lenders may accept your application, they will charge high interest rates. Normally, limited company loans are no different from secured and unsecured business loans.