Limited company loans - how do they differ? How do I apply?

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    At Swoop, we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. While we adhere to a strict editorial policy, our goal is to simplify complex matters, offer transparent information, unravel jargon, and empower businesses to confidently make smart financial decisions.
    Rachel Wait

    Page written by Rachel Wait. Last reviewed on January 4, 2024. Next review due April 6, 2025.

    Loans for limited companies are designed specifically for any company registered under Companies House. 

    Loans are a popular way for businesses to obtain the funds they need to expand, buy new premises, pay for new equipment or even cover everyday expenses. They enable businesses to borrow a lump sum of cash and repay this amount, with interest, in fixed monthly instalments over a set term. These fixed repayments can make it easier for businesses to budget as they know exactly how much they need to repay and by when. 

    Here, we look at how loans specifically for limited companies work and how easy it is to apply and get accepted. 

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      What are the requirements for a limited company loan?

      To apply for a limited company loan you will need to be registered with Companies House. The lender will check this when you apply for your loan. If you are registered, you can usually complete an online form with your chosen lender, providing a few details about your business. 

      Additionally, your business will usually need to be registered and trading in the UK and the business owner must be at least 18 years of age. Depending on the lender, your business might also need to have been trading for a set number of months and earn a set minimum turnover.

      Can a private limited company get a loan?

      Yes, limited companies can be either private or public which means they are both eligible to apply for a loan. That’s provided they meet all other eligibility criteria set out by the lender.  

      One of the key differences between private and public companies is that private company shares are not publicly traded on the stock market, whereas the shares of a public company are. A private company is usually owned by its founders, managers or investors and can also accept loans from its own shareholders.

      Do I need good credit to apply for a limited company loan?

      Having good credit can increase your chances of getting accepted for a limited company loan and help you to secure the best interest rates. However, if your business doesn’t have good credit, that doesn’t mean you’ll automatically be excluded from every loan on the market. You might just have fewer lenders to choose from. 

      Businesses with poor credit are less likely to get a limited company loan with a traditional high street lender, and might have more luck with an online specialist lender instead. Just be aware that rates are likely to be higher and you might not be able to borrow such a large sum.

      What is the minimum credit score for a business loan?

      Generally, there’s no set minimum credit score to get a business loan. Different lenders have different eligibility criteria and requirements, so while you might be turned away by one lender, you could get accepted by another. That said, most lenders will require you to have a business credit score of at least 40 to 50. 

      Numerical business credit scores (which most credit reference agencies use) range from 0 to 100. Scores of 40 and below are classed as high risk, scores between 40 and 80 are classed as medium risk and scores above 80 are low risk.

      However, as part of your overall affordability assessment, lenders will also look at your outstanding debts and regular outgoings, as well as your trading history. Your personal credit score (which is different to your business credit score) might also be considered, particularly if your business is new.

      Read more: find and improve your credit score here.

      How can I get a business loan with no money?

      If your business doesn’t have any money or cash flow, you might still be able to take out an unsecured business loan. Unsecured loans do not require you to use any collateral as security. 

      However, when taking out an unsecured loan, don’t be surprised if you’re asked to sign a personal guarantee. Limited companies usually benefit from limited liability, which means directors and shareholders cannot be pursued for the debts of the business. But a personal guarantee turns this on its head and means that you, as a director or owner of the business, could be personally liable for the debt if your business is unable to repay it. This gives the lender increased security which means you’re more likely to be able to get a loan.

      Different types of loans for businesses

      There are several different loan types available for businesses. These include:

      Secured loans

      Secured business loans require you to use an asset as security against the loan. This is typically property or land, but could also include machinery or vehicles. Should your business be unable to pay the loan back, the lender has the right to sell the asset to recoup its money. Because of this security, loan rates can be more competitive compared to unsecured loans, and you can usually borrow more. 

      Unsecured loans

      Unsecured business loans don’t require you to use an asset as security. But while this reduces the risk for the borrower, it increases the risk for the lender. For this reason, unsecured business loans tend to be for smaller amounts and interest rates can be higher. However, they are generally quicker to process (as there’s no need for an asset valuation) and can be better suited to smaller companies.

      Limited company loans

      Limited company loans are loans designed for businesses registered as a limited company with Companies House. Borrowing amounts and interest rates can vary depending on the lender. Public and private limited companies can apply for these loans to help them expand their operations.

      Short-term business loans

      Short-term business loans have much shorter repayment terms compared to traditional business loans. These tend to vary between three months and two years, depending on the lender you choose. This type of loan can suit businesses that need to cover unexpected expenses or those that want to take advantage of an opportunity that requires quick funding. They typically have higher interest rates but can be easier to get accepted for.

      How do I apply?

      Here at Swoop, we offer independent business loan comparison tables that let you compare interest rates, fees and term lengths to enable you to find the best loan for you and your limited company. Should you need any assistance, the team at Swoop would be happy to help guide you through the process. Ready to get funding? Start your journey now.

      Written by

      Rachel Wait

      Rachel has been writing about finance and consumer affairs for over a decade, helping people to get to grips with their finances and cut through the jargon. She's written for a range of websites and national newspapers including MoneySuperMarket, Money to the Masses, Forbes UK, and Mail on Sunday. Rachel has covered almost every financial topic, from car insurance and credit cards, to business bank accounts and mortgages.

      To read our editorial policy, please click here.

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