Expert Advice: Applying for a Limited Company Loan

Whether you're looking to expand, invest in new equipment, or manage cash flow, a loan can provide the funds you need. However, applying for a limited company (LTD) loan can be a complex process, especially if you’re unsure of what lenders are looking for.

This article will walk you through the steps of applying for a limited company loan, explain the different types of loans available, and provide expert tips to help you secure funding.

Table of contents

• What is a limited company loan?
• Different types of loans available
• Who can apply for a limited company loan?
• How to prepare for the loan application
• Step-by-step guide to the loan application process
• Important things to think about before applying
• Mistakes to avoid during the application process
• Expert tips to increase your chance of approval
• Real-life examples of successful loan applications
• How to register your company with Companies House
• How to compare different loan options
• Conclusion
• Additional resources

What is a limited company loan?

A limited company loan is a type of financing specifically designed for SMEs that are registered as limited liability entities. These loans are used for business purposes, such as:

• Funding new projects
• Covering operational costs
• Managing cash flow

There are different types of loans available for limited companies, each with its own benefits and requirements. A LTD company loan can be a great option if your business needs extra funding to achieve its goals. Unlike personal loans, these loans are based on the business’ financial health and the ability to repay the loan.

Different types of loans available

There are several types of loans available to limited companies, and the best option for your business depends on its needs. Here's a breakdown of the most common types:

Term loans

These are fixed amount loans that businesses repay over a set period, usually with fixed interest rates. Term loans are ideal for long-term investments and large-scale projects.

• Pros: Predictable repayments and stable interest rates.
• Cons: Requires good credit and often collateral.

Overdrafts

This is a short-term borrowing option where you can borrow money when your bank balance runs out. It's a flexible solution to cover day-to-day expenses.

• Pros: Quick access to funds, flexible repayment.
• Cons: High interest rates, only suitable for short-term needs.

Invoice financing

If your business has unpaid invoices, this loan type allows you to borrow money against those invoices. It’s great for improving cash flow.

• Pros: Fast access to cash, no need for collateral.
• Cons: Limited to businesses with outstanding invoices.

Asset-based lending

This loan is secured by your company’s assets, such as machinery, property, or inventory. It’s helpful if your company needs funds but has limited credit history.

• Pros: Easier to qualify with valuable assets.
• Cons: Risk of losing assets if payments are missed.

Peer-to-peer lending

With this loan, you borrow from individuals rather than financial institutions. It often offers lower interest rates but can be less regulated.

• Pros: Competitive interest rates.
• Cons: Limited availability, less regulation.

Who can apply for a limited company loan?

Before applying for a business loan for a limited company, you need to understand the basic eligibility requirements. The following factors can affect your chances of securing a loan:

• Credit score: Lenders will often look at your company’s credit history and personal credit score of the directors to assess your business’s ability to repay the loan.
• Business plan: Lenders want to know how you plan to use the loan. A clear and detailed business plan can increase your chances of approval.
• Financial records: Lenders will review your company’s financial statements, including balance sheets, profit and loss statements, and cash flow reports.

How to prepare for the loan application

Before submitting your LTD company loan application, there are several steps you should take to ensure you’re fully prepared. Here’s how to get ready:

1. Evaluate your financial needs

Determine exactly how much money you need and why. Will the loan be used for expanding operations, buying equipment, or improving cash flow? Be specific.

2. Get your documents in order

Lenders will want to see up-to-date financial statements, including your income statement, balance sheet, and cash flow statement. Make sure these are accurate and complete.

3. Prepare a solid business plan

Your business plan should clearly outline how you intend to use the loan and how it will help your business grow. Include details about your target market, competitors, and revenue projections.

Step-by-step guide to the loan application process

Once you’re ready, here’s a simple guide to the loan application process:

1. Research loan options: Look for lenders that offer the type of loan your business needs. Compare interest rates, terms, and fees to find the best deal.
2. Fill out the application: Complete the loan application form with accurate information. Be sure to double-check for any errors or missing details.
3. Submit your documents: Include your financial statements, business plan, and any other required documents.
4. Wait for approval: After you submit your application, the lender will review your information. This can take anywhere from a few days to several weeks, depending on the lender. (At Fleximize, you’ll receive a final decision within 24 hours).
5. Review the offer: Once you’re approved, review the loan terms carefully. Make sure the repayment schedule and interest rates are manageable for your business.

Important things to think about before applying

Before applying for a limited company loan, it’s important to consider several factors:

• Repayment terms: How long will it take to repay the loan, and what will the monthly payments be? Make sure the repayment schedule works for your business’ cash flow.
• Interest rates: The cost of borrowing can vary significantly. You can compare the cost of your business loan quotes with our handy rate comparison tool.
• Secured vs. unsecured loans: Some loans require collateral, such as assets or personal guarantees. Make sure you understand the risks if you choose a secured loan.
• Loan covenants: Some lenders may impose conditions on your loan, such as maintaining a certain level of revenue or profit. Understand these covenants before agreeing to the loan.

Mistakes to avoid during the application process

To improve your chances of being approved for a loan for LTD company, avoid these common mistakes:

• Incomplete applications: Always ensure that all sections of the application are filled out correctly and completely. Missing or incorrect information can delay the process.
• Overlooking financial health: Lenders will review your financial health closely. Ensure that your financial statements are up to date and reflect your company’s true performance.
• Ignoring the fine print: Read all terms and conditions carefully. Understand the loan covenants, repayment schedule, and any fees associated with the loan.

Expert tips to increase your chance of approval

1. Have a strong relationship with your lender. Open and transparent communication with lenders can improve your chances of getting approved.
2. Check your credit score before applying. If your score is low, consider taking steps to improve it before applying for a loan.
3. Ensure your financial statements are accurate and demonstrate that your business is financially healthy.

How to register your company with Companies House

Before you apply for a business loan for a limited company, ensure that your business is properly registered with Companies House. This is the official UK government body where companies must be registered in order to operate legally. Proper registration helps establish your company as a separate legal entity and is essential for loan eligibility.

The good news is that it’s fairly straightforward, and there is lots of help along the way.

1. Choose a company name. Make sure it’s unique and follows Companies House naming rules.
2. Select a registered office address. This must be a physical UK address where official documents will be sent.
3. Appoint directors and shareholders - a company needs at least one director and at least one shareholder.
4. Draft a memorandum of association (company formation agreement) and articles of association (rules for running the company).
5. Apply through the Companies House website (£12 fee, typically processed within 24 hours) or by post (£40 fee, taking 8-10 days).
6. Once approved, you’ll get your certificate of incorporation confirming your company is legally registered.

How to compare different loan options

When applying for a LTD company loan, it’s important to shop around and compare different loan options. Use online tools to compare interest rates, terms, and repayment schedules. This will help you find the best loan for your needs and ensure that you’re not paying more than you need to.

Conclusion

Applying for a limited company loan doesn’t have to be complicated. By understanding the different types of loans, knowing what lenders look for, and avoiding common mistakes, you can increase your chances of securing the funding your business needs to grow.

Additional resources

For more information on applying for a limited company loan, check out our helpful resources:

• Limited Company Loans
• Business Loans
• Secured Business Loans
• Unsecured Business Loans