What You Need To Know About Limited Company Loans
When it comes to getting a limited company loan, there’s a lot that business owners need to know. How do you go about borrowing money as a limited company? What are the best options for financing? And what should you be aware of before applying for a loan?
In this blog post, we’ll answer all these questions and more. So if you’re thinking of taking out a loan for your limited company, make sure you read on!
What are limited company loans and how do they work?
A limited company loan is a type of loan that is specifically designed for limited companies. As the name suggests, it is a loan that is taken out by a limited company – usually to finance business growth or expansion.
A limited company loan can be either secured or unsecured. A secured loan is a loan that is backed by an asset – typically, the business premises or equipment. This means that if you default on the loan, the lender can claim back the asset to recoup their losses.
These have lower interest rates because they’re seen as less risky by lenders. However, they do require that you put up an asset as collateral, which may not be suitable for all businesses.
An unsecured loan, on the other hand, is not backed by an asset. This means that if you default on the loan, the lender cannot claim back any of your assets. However, this also means that unsecured loans tend to have higher interest rates than secured loans.
The benefits of limited company loans
There are a number of benefits that come with taking out a limited company loan.
Finance business growth or expansion
Firstly, it can be a great way to finance business growth or expansion. If you need money to buy new equipment, expand your premises, or hire new staff, a limited company loan can be a good option.
Improve your cash flow
Secondly, limited company loans can help you to improve your cash flow. This is because they give you access to funds that you can use to cover day-to-day expenses, such as rent, utilities, and wages. This can be particularly helpful if your business is going through a period of growth and you need extra working capital to tide you over.
Thirdly, limited company loans can be used for a variety of purposes. For example, you could use a limited company loan to buy a new van or invest in marketing. This flexibility can be very useful for businesses that have specific funding needs.
Repayments are tax deductible
Fourthly, limited company loans can be beneficial from a tax perspective. This is because the interest payments on limited company loans are tax deductible. So, if you’re looking for a way to reduce your tax bill, taking out a limited company loan could be a good option.
How to apply for a limited company loan
If you’re interested in taking out a limited company loan, there are a few things you need to do.
First of all, you’ll need to find a lender that offers loans to limited companies. There are a number of specialist lenders that offer limited company loans, so it’s worth shopping around to see what’s available.
Once you’ve found a lender, you’ll need to fill out an application form. This will usually include information about your business, such as your turnover and profit margins. The lender will also carry out a credit check on your business.
Once you’ve been approved for the loan, you’ll need to sign a contract. This will set out the terms and conditions of the loan, including the interest rate and repayment schedule. It’s important to read the contract carefully before signing it, as this will bind you to the terms of the loan.
What to consider before taking out a limited company loan
There are a few things you need to consider before taking out a limited company loan.
First of all, you need to make sure that you can afford the repayments. Limited company loans typically have to be repaid over a period of two to five years. This means that you’ll need to ensure that your business has enough cash flow to cover the repayments.
Secondly, you need to think about the interest rate. Limited company loans usually have an interest rate of between 5% and 10%. However, this will vary depending on the lender and the type of loan you take out.
Thirdly, you need to consider the fees associated with taking out a limited company loan. There are usually a number of fees that come with limited company loans, such as arrangement fees and early repayment fees.
Type of Loan
Fourthly, you need to think about the type of loan you want to take out. There are two main types of limited company loan: term loans and overdrafts. Term loans are typically used for one-off purchases, such as buying new equipment. Overdrafts, on the other hand, can be used for day-to-day expenses.
Finally, you need to think about security. Limited company loans are usually unsecured, which means that they’re not backed by an asset. This means that if you default on the loan, the lender cannot claim back any of your assets. However, this also means that limited company loans tend to have higher interest rates than secured loans.
Limited company loans can be a great way to fund your business. However, it’s important to make sure that you consider all of the factors before taking out a loan. This will help to ensure that you get the best possible deal for your business.