Can I Get a Commercial Loan for a Limited Company?

If you own a limited company, accessing commercial loans can be a valuable way to secure funding for growth, manage cash flow, or finance business expansions. Commercial loans for limited companies offer a wide range of options tailored to meet different financial needs and business models. Here’s what you need to know about eligibility, loan types, and how limited companies can navigate the lending process.

What is a Commercial Loan for a Limited Company?

A commercial loan is a financial product offered by lenders specifically for businesses. For limited companies, these loans can support expansion, the purchase of new equipment, hiring staff, or other growth-related expenses. Unlike other types of business finance, loans for limited companies often include bespoke options suitable for businesses registered with Companies House. These loans are typically available to both private and public limited companies, providing they meet the lender’s criteria.

Requirements for a Limited Company Loan

To apply for a loan as a limited company, your business must meet some basic requirements:

1. Registration with Companies House: Your business must be registered as a limited company, either private or public, with Companies House. Lenders use this registration as a basis to verify your business.
2. UK Trading Status: Most lenders require that your company be registered and actively trading in the UK. Some lenders may also specify a minimum turnover or trading period before applying for a loan.
3. Credit Check: Many lenders require a credit score to assess the risk associated with lending to your company. Even if your business credit is limited or not yet established, a personal credit score may also be evaluated, especially if the company is new.

Can a Private Limited Company Get a Loan?

Yes, private limited companies (Ltds) are fully eligible for commercial loans, as are public limited companies (PLCs). While PLCs have shares traded on the stock exchange, Ltds are privately owned and their shares are not publicly traded. Both types of companies can apply for commercial loans, provided they meet the lender’s criteria. Additionally, private limited companies may also receive loans from their shareholders, who may invest directly or act as guarantors.

Do You Need Good Credit to Apply for a Limited Company Loan?

Having a good credit score can increase your chances of being approved for a loan with favourable terms, but it is not strictly necessary. Lenders use business and personal credit scores to assess risk, so a high credit score can often lead to lower interest rates and larger loan amounts. Businesses with lower credit scores may still qualify for loans but might face higher interest rates or more restrictive loan terms. In cases of limited credit, online and alternative lenders are often more flexible than traditional banks, though at potentially higher costs.

What is the Minimum Credit Score for a Limited Company Loan?

While there isn’t a universally set minimum credit score to qualify for a limited company loan, most lenders prefer a score within the range of 40 to 50 (on a scale where 100 is a perfect score). Generally:

• 40 and below is considered high risk.
• 40 to 80 is medium risk.
• 80 and above is low risk.

Scores may vary based on lender requirements, and the assessment will also consider your outstanding debts, expenses, and personal credit score. A robust business plan and steady cash flow can sometimes offset a lower credit score.

Types of Loans Available for Limited Companies

Limited companies can access a variety of loan types, each with distinct features suited to different business requirements:

1. Secured Loans: These loans require assets, such as property or equipment, as collateral. By securing the loan with assets, companies often benefit from lower interest rates and higher borrowing amounts. Secured loans can be a good option for companies that own valuable assets but need to free up cash for operations or expansion. However, if repayments aren’t met, the lender can reclaim the asset to cover the debt.
2. Unsecured Loans: For companies that lack significant assets or prefer not to pledge them, unsecured loans provide a viable option. They typically involve higher interest rates and smaller loan amounts, given the lack of collateral. Unsecured loans are generally processed faster than secured loans, making them ideal for companies in need of quick financing.
3. Short-Term Loans: These loans typically cover immediate funding needs, with repayment terms between a few months to two years. Short-term loans may have higher interest rates but can provide rapid access to capital for time-sensitive opportunities or urgent expenses.
4. Merchant Cash Advances: Limited companies that rely on card payments may consider merchant cash advances, where repayment is directly tied to sales. This funding solution is popular in sectors with high turnover, like retail, as repayments flex with daily revenue, helping to maintain cash flow during slower periods.
5. Invoice Financing: For limited companies with outstanding invoices, invoice financing provides an advance based on unpaid invoices, helping to maintain cash flow without waiting for clients to settle invoices. This can be especially beneficial for companies facing delayed payments from clients.
6. Revolving Credit Facility: Similar to an overdraft, a revolving credit facility allows companies to draw and repay funds as needed up to a set limit. It’s a flexible option for companies with seasonal cash flow needs or unexpected expenses, as interest is only charged on the amount borrowed.

How to Apply for a Limited Company Loan

The application process for a commercial loan varies by lender but generally follows these steps:

1. Research and Compare Lenders: Begin by researching loan providers and comparing terms, fees, and eligibility requirements. Many lenders offer online comparison tools or pre-approval checks that won’t affect your credit score, allowing you to gauge your options.
2. Prepare Your Business Documentation: Gather key financial documents, including your business plan, financial statements, cash flow projections, and details on outstanding debts or expenses. Lenders will use this information to assess your company’s creditworthiness.
3. Submit Your Application: Apply through the lender’s online portal, in person, or over the phone, depending on the lender’s process. Some loans can be approved within a few days, while others may take longer, especially if additional financial information is required.
4. Review Terms and Finalise the Loan: Once approved, carefully review the loan terms, including interest rate, repayment schedule, and any associated fees. Ensure you understand your obligations and confirm acceptance of the terms.

Tips for First-Time Borrowers

For new limited companies or first-time borrowers, here are some steps to increase your chances of securing a loan:

• Build a Strong Personal Credit Score: Since many lenders consider personal credit, especially for newer companies, maintaining a good personal credit score can increase your chances of approval.
• Develop a Solid Business Plan: Lenders look for evidence of a viable business model. A comprehensive business plan with growth projections and cash flow estimates can make a strong case.
• Consider Alternative Lenders: If traditional lenders are hesitant, online or alternative lenders often have more flexible eligibility requirements, though they may come with higher interest rates.

Can You Get a Business Loan with No Money?

Yes, limited companies with minimal or no cash flow may still be eligible for certain types of loans, such as unsecured loans or personal guarantees. Unsecured loans are based on the business’s credit and financials rather than cash flow, though they often require the business owner to sign a personal guarantee. This means that if the company defaults, the owner can be held personally responsible, mitigating the lender’s risk.

Is a Commercial Loan Right for Your Limited Company?

Whether you’re seeking rapid funding, long-term investment, or cash flow support, a commercial loan for a limited company can be a viable solution. Each type of loan offers unique benefits and requirements, allowing you to match your financing needs with the most suitable option. Evaluate your company’s financial standing, credit history, and long-term goals to find the best loan type, and explore reputable lenders to get started on funding your business growth.