With corporation tax rising to 25% for businesses with profits over £50,000 as of last year and a decrease in the total number of private sector businesses in the UK in 2024 when compared to figures from 2023, many businesses are turning to loans for limited companies to help support their growth and stability.
We’ve put together this easy to digest guide to help you get to grips with loans for limited companies.
There are some great benefits to limited company loans, we’ve outlined a few of these below.
Unlike an investment, loans keep you in the driving street. There is a set agreement, a repayment plan, and you retain control of your own company.
Limited company business loans enable you to fund growth opportunities as they appear, rather than being forced to wait until you’ve accumulated enough profit.
There are a wide range of limited company loans and a great deal of flexibility in how you can use them, creating more flexibility and scalability in your business.
Limited company loans can provide your company with the resources you need to offer competitive salaries and benefits packages, enhancing your ability to attract the best talent.
We’ll ask a few questions about your business and the reason for your loan.
Our smart technology will compare quotes from up to 120+ lenders to help you find the ideal business loan.
We'll be there to guide you through every step of the process.
Secured loans are supported by assets that lenders use as security to ensure they will get back the same value from the loan if the business can’t make repayments. Some examples of assets are property, vehicles and other items that have value and can guarantee a lender money back should anything go wrong.
Unlike secured loans, an unsecured loan is given out by lenders without a backup of assets or other valuable items. Whilst they tend to be for smaller value, an unsecured loan is quicker to process and suits smaller businesses like limited companies.
Limited company loans are loans exclusively for businesses registered as limited companies at Companies House. They’re suitable for all types of businesses that are either publicly or privately trading and have been introduced to help limited companies grow.
Short term loans, as the name suggests, are loans granted to businesses with a shorter repayment term in place. If you apply for a short term business loan, the lender will have their own repayment terms which can be anywhere between 3 months and 2 years.
If you're ready to take your business to the next level, use our business loans calculator to get an idea of what you can afford.
Want to understand the cost of your loan?
Use our business loan calculator below to find out how much you can borrow to take your business to the next level.
Calculations are indicative only and intended as a guide only. The figures calculated are not a statement of the actual repayments that will be charged on any actual loan and do not constitute a loan offer.
Monthly payments
-
Monthly interest
-
Total interest
-
Length of loan
-
Total cost of loan
-
Representative example*
• 7.63% APR Representative based on a loan of £50,000 repayable over 24 months.
• Monthly repayment of £2,252.94. The total amount payable is £54,070.56
*Some lenders may apply fees during the application process, please note that these are set and provided by these entities.
Annual Percentage Rates
Rates from 2.75% APR
Repayment period
1 month to 30 years terms
A limited company loan is very similar to a personal loan, except they’re exclusively for companies registered with Companies House, or in other words, limited companies.
In the same way there are a wide range of loans available to you as a consumer, ranging from credit cards, to mortgages, to car leases.
Limited company loans can provide businesses with up to £20M in funding, which can be used for a wide range of purposes.
Limited company loans can be used to fund a marketing campaign, update or upgrade your technology stack, research and launch a new product, and even smooth over mergers and acquisitions.
You can use a limited company loan to boost cash flow, onboard and pay staff, purchase inventory and stock, bridge gaps in funding, smooth out working capital, and invest in or replace equipment.
From paying off a corporation tax bill, to purchasing a collection of properties to create a buy to let portfolio, to consolidating debts and paying legal fees, property, admin, and taxes can all be supported with loans for limited companies.
Here are some examples of how limited company loans work.
Example A: Let’s say you’re the proud company director of a limited company. You’re putting together your end of year budgets, and you’ve spotted a short fall. Unless a client kindly pays their invoice early, you’re going to be stuck with negative working capital in the month of February.
To navigate this cash flow shortage, you could take out a working capital loan. You apply online, the lender considers your application and if you’re approved, they forward the funds. How you repay those funds varies from lender to lender, but if you took out a short term working capital business loan, you’ll likely repay in monthly instalments over the course of several months to a year.
Example B: Now imagine you own a chain of restaurants. You’d like to refresh your customer-facing premises, but the costs of a renovation would eat into your working capital, hindering your ability to purchase ingredients and pay staff.
In this instance, you might consider a bridging loan. A bridging loan is a secured short term loan. You could use one of the restaurants as security for the loan, use the loan to refurbish your chain of restaurants, and then pay off the bridging loan plus interest and fees in a few months once you make up the money in sales.
All financing options have drawbacks and risks to watch out for, here are some of the ones you should consider before taking out a limited company loan.
A debt spiral is when a business becomes increasingly reliant on debt and the debt becomes unmanageable, growing larger in size with compounding interest rates.
It’s important to be careful not to take out too much debt. Overexerting your business financially beyond its means can lead to loss of control and even insolvency.
Loans usually come with a mixture of fees and interest rates, which can eat into your profits, particularly if you lose sight of the overall cost of financing.
If you miss payments or default on a loan, it’s possible you may lose your assets through possession or repossession. This can occur whether or not you take out a secured loan.
Maybe, that depends a lot on your agreement with the lender. As a limited company, there is some degree to which you are protected by limited liability, but this does not cover you entirely. If you sign a personal guarantee, you are certainly liable for the loan. If you did not sign a personal guarantee, that does not necessarily mean you are not liable. If this is a concern for you, consider discussing this with the lender before entering into an agreement.
Much like the businesses themselves, loans for limited companies come in all shapes and sizes and offer a range of financial relief for all types of companies. Designed to help limited companies grow, a loan for limited companies is an unsecured sum of money lenders offer for any company registered under Companies House.
Whether or not you can get one will depend heavily on the unique circumstances of your business, however, in general, you will likely be able to find a loan if you are over the age of 18, if your company is based in the UK, and if you’ve been trading for at least 6 months. Whether or not that loan will have favourable terms is another question, one our expert team could help you get to grips with.
The only way you can apply for a limited company loan is to be registered with Companies House as the lender will have to check beforehand. If you’re registered, you’ll be able to complete an online form and apply for the loan by sharing some basic information about your business. The lender you’ve chosen will then review and decide whether to grant your business loan.
Yes, as limited companies can be either private or public, both types of companies are eligible to receive loans. The difference between private and public limited companies is that private companies don’t publicly share trade shares and are limited to a maximum number of shareholders whereas public limited companies trade publicly on the stock exchange.
Private limited companies can also accept loans from their own shareholders or find a lender and apply.
In short, no your business doesn’t need good credit to apply for a limited company loan but it might affect your ability to apply with traditional high street lenders and to get favourable terms. Businesses with bad credit may be restricted by how much they can borrow, will likely receive high interest rates, and lenders can apply their own terms to the loan once it’s granted.
Yes, you’ll need a personal or business credit score when applying for a business loan. A credit score is a number between 300 and 850 that's worked out based on credit history which is- the number of active bank accounts, total levels of debt, any repayment history as well as other factors such as the number of direct debits etc.
A credit score is given to every person- both personal and business account owners- and you’ll start developing a score the moment you open a bank account or set up a direct debit. Lenders will take into consideration a business’s credit score before granting a loan.
The minimum credit score for a loan like a limited company loan is generally between 640 to 700 which is an average score. Before granting a loan, lenders will review any outstanding debts and other loans your business has against its name as well as regular outgoings. They will then calculate the risk of lending your business the money before either rejecting or granting your loan request.
If you’ve just started up a limited company and want to apply for funding, you'll need to have a great personal credit score, an impressive business plan, as well as ample collateral to qualify for a first-time business loan from a bank. Lenders will be looking for predicted evidence your business will thrive before committing to giving your company a loan.
Lenders can offer your limited company an unsecured loan if your business doesn’t have any money or cash flow. We’ve previously written a guide to unsecured business loans and why they may be the most suitable option for your company. There are a wide range of lenders to choose from with unsecured loans so it may work out to be the best option for your limited company.
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.
Short-term lending can lead to financial difficulty and is not suitable for everyone. Contact us for support if you ever face difficulties making your repayments. Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk
Please note that invoice finance is only as good as the strength of your debtors and it can be admin heavy.