Understanding Loans for Limited Companies
Understanding Limited Company loans is essential to finding the right deal for you. There are a wide variety of Limited Company business loans out there, so knowing the basics will put you a prime position to find the best loan for your business.
Many directors have concerns about the idea of applying for limited company loans. They may believe that it is a tiring, time-consuming and frustrating process that involves a lot of credit checks and paperwork.
However, the traditional idea of a Ltd company loan from the bank is something of the past, as new, alternative and refreshing methods of finance are now benefiting more and more businesses across the UK.
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What is a Limited Company Loan?
There are 4.2 million limited companies currently registered in the UK. A Limited Company refers to the legal structure of business operations – the management (directors) are distinct from the owners (share-holders). This is a specific legal definition, and you must be registered with Companies House in order to be recognised as a Limited Company. Every Limited Company has its own individual number and SIC code to identify it, as well as articles of association, which set the rules directors and officers need to follow while running the business.
The alternative is running a business as a Sole Trader, where the business is owned and operated by the same self-employed person. It’s important to note that these definitions refer only to the structure of the business, and both Sole Traders and Limited Companies can have employees.
It’s simple to form and register a Limited Company with Companies House. There’s a step by step guide on Gov.uk, including who to register as directors, what records you’ll need to keep and how much it costs. You can also learn about loans to sole traders here.
The kind of loan you go for all depends on the terms of the lender and what you agreed when you took out the loan. Some lenders specialise in one specific type, others are more flexible.
There are lots of options available, and they were all created to make business finance more accessible and easier to repay.
Limited Company Loans: What Should You Know?
The key benefit of Ltd Company loans is that as a Limited Company you’re automatically viewed as less of a liability than a Sole Trader would be.
This means that you could qualify to borrow a larger amount of money over a longer period of time. The drawback is that you might be required to provide much more detailed information to your loan provider during the consultation process to allow them to get the best possible view of your company’s financial situation. This could be an issue if you don’t keep up to date or accurate documentation.
Who Can Apply For a Limited Company Loan?
There are a number of loans for Limited Companies of all sizes. It doesn’t matter what the business is, the products you sell, or the service that you provide – what matters is that you have registered as a Limited Company. It’s essential that you’re able to provide proper documentation, from Companies House, indicating that you are a fully registered and recognised Limited Company. You could qualify for a Capify limited company loan if:
- Your business is registered as a Limited Company.
- Your business has been trading for 12 months.
- Your turnover averages £10,000 per month.
6 months of repayments can involve larger payments rather than cheaper payments spread out over several years. It can free up your finances much quicker, and give you the chance to raise more cash sooner if you need it.
What are the advantages and benefits?
When businesses are able to obtain secured small business loans they can benefit from relatively low interest rates. As lenders have an interest in business assets and can seize them if the loan isn’t repaid, this type of lending is typically less risky for them.
Due to this, lenders are often willing to lend with more flexible repayment terms and with lower interest rates. Overall, this means businesses may benefit from paying less interest on a secured loan and, therefore, reducing their outgoings over the lifetime of the loan.
What Businesses Qualify?
Almost any type of business can qualify for a secured loan, providing they have the assets to offer as collateral. Lenders are generally more interested in the capital, assets and revenue of a company, rather than the industry in which they operate.
Many lenders will only offer secured small business loans to companies which have traded for a certain amount of time, although this varies between loan providers. Similarly, some lenders may stipulate that businesses must have a certain level of revenue before they qualify for a secured loan.
However, lenders have additional security due to the secured nature of the loan so businesses may be able to access more flexible terms, providing they have the appropriate amount of collateral in the business.
Capify’s qualifying criteria
To qualify for business finance from Capify, you need to:
Tick all of the boxes? Why not apply today and find out how much you can raise.
Making Repayments On a Limited Company Loan
Repaying this kind of loan is also a straightforward process. Your repayment schedule is calculated on an automatic basis, which means that small amounts of money are taken out of your chosen business bank account each day.
The consequence of this is that you will not need to worry about large, lump sum monthly repayments or late fees.
If at any time you feel that you need more money, as long as you are able to meet certain conditions then you could be eligible to extend the loan even further if a certain percentage of the original has been repaid.
Find Out How Much You Can Raise
Grow your Limited Company now.
Use our Limited Company loan calculator to find out how much you could raise, and which type of finance will work best for your business.
You could raise £5,000 to over £500,000 with Capify’s Small Business Loan. It’s easy to get your cash quickly, and repayment is manageable and predictable.
Instead of repaying large monthly payments, Capify will take a small payments over a 6 to 12 month period until your loan is repaid.
The personal touch
You’ll speak exclusively to your own dedicated account manager. They’ll guide you through the application process and answer all your questions.
Our HQ is based in South Manchester. We work with small businesses all over the UK.
Make small, regular payments. You can focus on growing your business while protecting your cash flow.
Pros and Cons of Limited Company Loans
|Limited Liability: Shareholders’ personal assets are protected from business debts, limiting individual risk in case of loan default.||Stringent Regulatory Compliance: Limited companies face more complex regulatory requirements, leading to higher administrative costs and processes.|
|Higher Borrowing Capacity: Limited companies can access larger loan amounts, facilitating business expansion and investment in new projects.||Risk to Shareholders’ Investment: Although shareholder liability is limited, the investment remains at risk if the company fails to repay the loan.|
|Lower Interest Rates: Lenders may offer lower interest rates to limited companies due to their established and stable business structure.||Longer Loan Approval Process: Comprehensive evaluation of financials and legal structure may lead to longer loan approval times for limited companies.|
|Business Growth Opportunities: Access to more significant loan amounts allows limited companies to seize growth opportunities and expand operations.||Potential Personal Guarantees: Lenders may request personal guarantees, potentially putting personal assets at risk in case of loan default.|
|Easier Loan Approval: Limited companies may find it easier to get loan approvals due to their perceived stability and reliability.||Impact on Ownership Structure: Securing loans may impact ownership, leading to dilution or the inclusion of new shareholders in the company.|
|Separate Legal Entity: Limited companies are separate legal entities, distinguishing their financial and legal obligations from shareholders.||Higher Documentation Requirements: Limited companies often need to provide extensive documentation to support loan applications, adding to the workload.|
|Professional Image: Operating as a limited company enhances business credibility and reputation, positively influencing loan applications.||Interest and Debt Repayment: Loan interest and repayment can strain company finances, affecting cash flow and profitability.|
|Tax Benefits: Limited companies may enjoy certain tax benefits, improving their financial position and ability to repay loans.||Limited Access for New Businesses: Start-up limited companies may find it harder to secure loans without an established operating history.|