Limited company business loans: how companies borrow

The company applies, the lender assesses the company and its directors, and any loan is paid to the company's bank account. Repayments come from company funds. The lender may register a charge at Companies House if the loan is secured, and will usually ask one or more directors for a personal guarantee.

Being a limited company widens your choice: many lenders deal only with companies, and filed accounts give lenders a clear view of performance. If you are still deciding on a structure, see sole trader vs limited company or our limited company vs LLP guide.

Most UK limited companies can qualify for a business loan once they have filed at least one set of accounts, show steady income through a business bank account, are up to date with Companies House and HMRC, and have directors willing to stand behind the borrowing. Lenders reach that view by looking at the following.

• Filed accounts: turnover, profitability and net assets over the last one to three years.
• Management accounts: up-to-date figures if your last filed accounts are several months old.
• Business bank statements: cash flow, existing repayments and how the account is run.
• The company's credit file: payment history, CCJs and filing record.
• Directors: personal credit histories, experience and any past company failures.
• Existing charges: security already registered at Companies House, which may limit what a new lender can take.
• Director's loan account: a large overdrawn balance can make lenders cautious about cash leaving the business.
• Purpose: what the money is for and how it will be repaid.

Much of this is public. You can see what lenders see about your company's filings and charges through GOV.UK's company information service.

Why filing on time matters

Late accounts or confirmation statements show on the public record and can weaken the company's credit profile. Before applying, check your filings are up to date and that any satisfied charges have been removed from the register.

Shareholders are not normally liable for company debts beyond their investment. But most lenders ask directors of small and medium-sized companies to sign a personal guarantee, especially on unsecured borrowing. If you sign one, you can be pursued personally if the company cannot repay. Directors can also become liable for wrongful or fraudulent trading, or for an overdrawn director's loan account if the company becomes insolvent. Read any guarantee carefully and consider independent advice; our guide to personal guarantees explains how they work.

A company with no filed accounts yet has fewer options. Lenders lean on the directors' experience and personal credit, bank statements from the months the company has traded, forecasts and any security. Asset finance and start-up focused lending are often the most accessible routes until the first accounts are filed.

A company that does not want, or cannot get, a term loan can often raise money from its own assets, its directors or a change in how it pays its liabilities.

• Directors can lend money into the company, recorded through the director's loan account and repayable later without a lender involved.
• Invoice factoring or asset refinancing release cash already tied up in the business rather than adding new debt.
• For a tax bill, HMRC may agree a payment plan; compare it in our guide to Time to Pay versus a tax loan.
• Selling shares to investors avoids repayments but gives up ownership; our guide to debt versus equity funding sets out the trade-off.