Can a Limited Company Get a Business Loan?
Yes. Limited companies can obtain business loans, and company borrowing is one of the most common ways established UK businesses raise finance.
Because a limited company is a separate legal entity from its directors and shareholders, the company itself will normally be the borrower.
That doesn't mean lenders only look at the company. When assessing an SME loan, lenders may also consider the directors or shareholders behind the business and may require them to provide personal guarantees.
The amount a limited company can borrow will usually depend on its turnover, cash flow, trading history, existing debt, credit profile and ability to afford the proposed repayments.
How does a limited company business loan work?
The loan agreement is normally entered into between the lender and the limited company.
For example, if ABC Trading Limited borrows £50,000, ABC Trading Limited is responsible for making the repayments.
The loan will usually specify:
the amount borrowed;
repayment term;
interest and fees;
repayment frequency;
any security requirements;
any personal guarantees; and
what happens if the company fails to make its repayments.
The company then uses the funds for an agreed business purpose and makes repayments according to the loan agreement.
What can a limited company use a business loan for?
Limited companies borrow for many different reasons.
These can include:
working capital;
purchasing stock;
buying equipment;
recruiting employees;
marketing;
refurbishing premises;
opening a new location;
financing growth;
funding a large new contract; and
managing seasonal cash-flow requirements.
A lender will normally want to understand why the company needs the money.
The purpose can be relevant both to the lending decision and to determining an appropriate amount and repayment term.
How much can a limited company borrow?
There isn't a fixed amount.
A company's borrowing capacity will depend on its individual financial position.
Turnover can provide a useful starting point. For some forms of short-term business lending, a broad rule of thumb might be maximum borrowing of around one to two months of average revenue.
For example, a business receiving approximately £75,000 per month might potentially be considered for borrowing somewhere in the region of £75,000–£150,000.
But that doesn't mean it will qualify for that amount.
A company already making substantial loan repayments may have considerably less borrowing capacity than another business with identical turnover and little existing debt.
For longer-term lending, a larger amount relative to monthly revenue may sometimes be possible because the repayments are spread over a longer period.
You can read more in How Much Can My Business Borrow?
How long does a limited company need to have been trading?
This varies between lenders.
Some lenders finance relatively young businesses, while others concentrate on established companies with several years of trading history.
Generally, a longer trading history provides the lender with more information on which to base its decision.
An established company can potentially demonstrate:
historical turnover;
profitability;
cash generation;
repayment history;
resilience through difficult trading periods; and
how the business has developed over time.
A company with only a few months of trading has much less evidence available.
This doesn't mean newer companies cannot obtain finance, but their options may be more limited.
Does a limited company need to be profitable to borrow?
Not necessarily.
Profitability is an important consideration, but lenders don't necessarily assess an application solely on the net profit shown in the latest accounts.
For example, a company might report a historical loss because it made a substantial investment in expansion but now be trading profitably.
Another business might show a healthy accounting profit while experiencing significant cash-flow pressure.
A lender may therefore consider:
historical profitability + current trading + cash flow + liquidity + existing commitments.
The reasons behind the numbers matter.
What information will a limited company need to provide?
Requirements vary according to the lender and size of the facility.
A lender may consider information including:
Companies House records;
filed accounts;
business bank statements or open banking information;
management accounts;
existing borrowing;
credit information;
details of directors and shareholders; and
the purpose of the proposed loan.
Straightforward applications may require relatively little manual documentation because some information can be obtained electronically.
More complex or larger applications may require additional financial information.
See What Documents Do I Need to Apply for a Business Loan? for more detail.
Will the lender check the company's credit?
Usually.
Limited companies can have their own credit profiles.
A lender may consider matters such as:
company credit score or rating;
CCJs;
previous defaults;
filed financial information;
insolvency information;
payment history; and
existing borrowing.
However, a business credit score isn't necessarily the sole determinant of the lending decision.
Some lenders use highly automated credit models, while others undertake more detailed manual underwriting.
Will the directors' credit also be checked?
Potentially.
Although the limited company and its directors are legally separate, lenders to SMEs may also consider the credit history of the people behind the company.
This is particularly likely where directors or shareholders are providing personal guarantees.
Depending on the lender, this could involve either a soft or hard personal credit search.
If you're concerned about this, ask the lender what searches will be undertaken before applying.
You can read more in Does Applying for a Business Loan Affect My Credit Score?
Does a director have to personally guarantee a company loan?
Not always, but personal guarantees are common in SME lending.
A personal guarantee creates a separate obligation under which the guarantor may become personally liable for amounts owed by the company if it fails to meet its obligations.
The guarantee doesn't change the fact that the limited company is the borrower.
Instead, it provides the lender with an additional route of recovery if the company defaults.
The requirement for a guarantee can depend on the lender, loan size, product and financial strength of the company.
See What Is a Personal Guarantee on a Business Loan? for a fuller explanation.
Does the director need to be a homeowner?
Not necessarily.
Some lenders require or prefer directors or guarantors to be homeowners. Others will consider applications from businesses whose directors don't own property.
Requirements vary considerably across the business lending market.
Homeownership is also different from providing property as security.
A director can be a homeowner and provide a personal guarantee without the lender necessarily taking a specific charge over the director's home.
Can a limited company get an unsecured business loan?
Yes.
An unsecured business loan doesn't require the company to provide a specific asset as security.
Instead, the lender relies primarily on the creditworthiness and cash generation of the business, potentially supported by personal guarantees.
This can make unsecured lending useful for businesses that don't own significant assets or require finance relatively quickly.
Loan amounts and repayment terms may be more restricted than with secured lending because the lender doesn't have specific asset security.
See What Is an Unsecured Business Loan? for more information.
Can a limited company get a secured business loan?
Yes, provided suitable security is available and the lender is comfortable with the application.
Security might be provided over property or another suitable asset, depending on the lender.
Secured lending can potentially provide access to:
larger loan amounts;
longer repayment periods; and
lower interest rates.
However, it usually involves additional legal work and may require a valuation, meaning completion can take longer.
Our guide to Secured vs Unsecured Business Loans explains the differences.
Can a limited company borrow if it already has a loan?
Potentially.
Having existing borrowing doesn't automatically prevent a company from obtaining further finance.
The lender will normally want to understand how much debt the company already has and, importantly, how much it is paying each month or week to service that debt.
A business generating £100,000 each month with £3,000 of existing loan repayments is in a very different position from one generating the same revenue but already making £25,000 of finance repayments.
The overall level of debt needs to remain affordable.
Can a limited company with a CCJ get a business loan?
Potentially.
Different lenders have different approaches to adverse credit.
A lender may consider:
value of the CCJ;
how old it is;
whether it has been satisfied;
circumstances that caused it;
whether there are multiple judgments; and
subsequent financial performance.
A historic isolated CCJ can present a very different risk from several recent unpaid judgments.
We will cover this separately in Can I Get a Business Loan With a CCJ?
Can a limited company get finance with HMRC arrears?
Potentially, although HMRC arrears are likely to be relevant to the lender's assessment.
A lender may want to understand the size of the liability, why the arrears arose and whether a formal Time to Pay arrangement is in place.
It will also consider whether the company can afford both the HMRC payments and the proposed loan repayments.
Again, the circumstances matter.
We'll cover this in more detail in Can I Get a Business Loan With HMRC Arrears?
Is the director personally responsible for a limited company business loan?
Normally, the company is responsible for its own debts.
However, there are important exceptions and qualifications.
Most obviously, a director who has provided a personal guarantee may become personally liable under that guarantee if the company defaults.
There can also be other circumstances under company and insolvency law where directors may incur personal liability, although those are separate from the normal operation of a business loan.
Directors should therefore understand both the company's obligations and any personal commitments they are being asked to make.
Applying for a limited company business loan with Adelpha Capital
Adelpha Capital provides business finance to England and Wales registered companies.
We assess applications individually, considering factors including turnover, cash flow, recent bank conduct, trading history, existing borrowing and the overall ability of the company to support the proposed repayments.
If your limited company is looking for business finance, you can apply online or contact the Adelpha Capital team to discuss your requirements.