If you run a limited company, you’ll need to source financing at some point. So knowing how limited company business loans work is your first step to finding the right option for your business. 

We’ve put together this in-depth guide on everything you need to know about securing a limited company business loan—including the types of loan available and how to qualify for one.

What is a limited company business loan?

A limited company business loan is a popular way for limited companies to raise finance to build out their product, team, marketing, or inventory. The loan is either secured, meaning you'll have to offer assets such as property or equipment as collateral against the loan.

Businesses can borrow more with a secured business loan, and these loans usually offer better interest rates and longer repayment terms. That’s simply because lenders see them as less risky than unsecured loans.

If you take an unsecured loan, you won't be required to give up certain assets if you are unable to make repayments.

Examples of short-term unsecured finance for limited companies include credit cards, overdrafts, invoice finance, fixed-term loans or even limited company car loans. On the other hand, businesses that need a long-term loan find that secured business loans, asset finance, and commercial mortgages are the most popular options.

Obviously, it depends on the lender, but limited company business loans can vary from $5,000 - $500,000. Lenders will typically let you borrow up to 15% of your company’s annual turnover.

How a limited company business loan can help your business

Businesses typically call on a business loan to fund research and development, expand into new territories, ramp up marketing efforts, or hire more employees. All these activities are necessary parts of growing a business, however, they're not all well-suited to a limited company business loan.

When you consider the main benefits of taking a limited company business loan, you'll see that they're best suited suited for activities that are likely to produce a relatively quick return:

  • Interest rates vary, depending on the use of capital, and business's track record, and whether any security is provided
  • Interest rates also vary depending on the provider
  • Businesses get quick access to funds (sometimes within 24-48 hours with online providers)
  • Business owners don't have to dilute their stake in the business.

Overall, limited companies may benefit from paying less interest on a secured loan and, therefore, reducing their outgoings over the loan’s lifetime.

Who is eligible for a limited company business loan?

Of course, the first requirement for getting a business loan is that your business is registered as a private limited company. Additionally, other lenders, including banks, have other criteria including:

  • You've been trading for 6-12 months (thought that timeframe varies between lenders)
  • You're turning over on average £10,000 per month 
  • The business owner is over 18 years of age
  • Your business doesn't have bad credit

If your business is a limited liability partnership (LLP), your lender may ask you for a personal guarantee. Any stakeholders and directors with at least 20-25% stake in the business may be expected to give a personal guarantee, which would be claimed by the lender if the business fails to pay back its loan.

Although lenders have a lot of different requirements, they are more interested in the capital, assets, and revenue of a company than the industry they operate in.

Can a new limited company get a business loan?

Since start ups are seen as a riskier option by lenders because they have a limited trading history, it can be more challenging for these new limited companies to access a loan. Although it varies, but most lenders will require you to have been trading for at least six months.

Many lenders also require you to have a minimum annual turnover. This additional requirement may make it harder for some new companies to be eligible. While a new limited company can get a business loan, it may be easier to access other start-up loans.

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

Though you don’t need a tip-top credit score to apply for a business loan, a poor credit rating might limit your ability to get accepted by traditional lenders, like banks.

Your limited company has a credit score of its own, however, that doesn’t prevent lenders from checking up on the personal credit records of the business's partners and directors. Therefore, both your business and personal credit rating can impact loan approval, as well as the amount of financing that you can qualify for.

What should you use a limited company business loan for?

Most types of limited company business loans are flexible, meaning you can use them for any business-related expense. The additional funding can help your company get through a slow sales period or boost your business growth by purchasing property or additional machinery.

Because the lender is unlikely to introduce conditions for how you spend your loan, unlike some other funding options, you can invest your business loan as you like. Below are some of the most common ways to use a limited company business loan. You'll notice these are often larger, one-off expenses, rather than part of the day-to-day running of the business, which will often come from the business's existing cashflow.

  • Supporting business growth and expansion
  • Recruitment for additional staff
  • Stock purchase
  • Expanding premises
  • Renovation/refurbishment of current premises
  • Invest in new equipment and machinery
  • Ease corporation tax payments
  • Website development
  • Improve cash flow

How limited company business loans work 

The process of applying for a business loan for a limited company starts with applying with lenders. You will be required to provide all necessary details to verify your business, including the registered name of your limited company, your registered number and SIC code.

You'll also be asked to provide the following:

  • Contact details
  • How long you have been in operation
  • Monthly/annual turnover
  • The amount you are looking to borrow

Once the loan is approved, the lender will get in touch with the terms and conditions of the loan and the quote, which includes the interest rates, loan terms and repayment details. 

From there, it’s up to you to review and agree to the terms. You will then be sent the terms of the agreement. Once both parties have signed, the loan will be transferred into your business bank account.

After receiving the money, you are required to make fixed monthly repayments at a pre-agreed interest rate until the loan is paid off in full. 

If you require additional funding, some lenders offer the option to ‘top-up’ your loan—providing you have met your payments on time, and your business continues to perform. However, you may be required to supply updated bank statements and financial documents.

Other limited company funding options

Business owners running limited companies may come into challenges with securing funding from traditional lenders. Apart from the more traditional limited company business loans, limited companies have a few other funding options. Including:

  • Revenue-based finance: Unlike a limited company loan, you don't pay interest. Instead, you pay back a pre-agreed share of your future revenue.
  • Merchant cash advance: Much like revenue-based finance, the lender withdraws a pre-agreed percentage of your card sales.
  • High street bank loans: This type of loan works best for more established limited companies. Banks have stricter qualifying criteria making them harder for small businesses to secure than with online providers. However, their interest rates are typically lower.
  • Corporation tax loans: In the UK, all limited companies are required to apply for corporation tax within three months of being registered. For new businesses with limited cash flow, business tax payments can delay growth—corporation tax loans assist with paying the tax on time.
  • Crowdfunding: This is a more modern approach to funding that relies on investment from people in return for debt, equity or another form of compensation. While it is a viable option, crowdfunding is never guaranteed—it can also take a long time to raise funds.

Whatever loan you choose, as a business owner, it's important to look into the range of options available to your company. And knowing which one suits you best starts with understanding your own financial situation, and how lenders are likely to perceive you.

At Uncapped, we offer investment capital with offers ranging from £10k to £5m through a revenue share agreement similar to a merchant cash advance. See if you qualify