A limited company is one of the most popular forms of business. Limited liability companies are relatively different from sole proprietorships and partnerships, for example. In particular, there are issues of liability, financing and governance of the company. A limited liability company distinguishes between legal persons (the company itself) and natural persons (e.g. the board of directors and the CEO).
It is the natural person (the company) who takes out the business loan, and is responsible for the repayment of the loan. In some cases, the representatives may also be personally liable, for example, if they have provided a personal guarantee, for certain types of taxes or if they have been negligent in using up the company's own capital.
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Apply for a business loan for a limited company
By borrowing directly from the limited company, all borrowing costs (e.g. interest, monthly charges and set-up fees) are deductible. The cost of the business loan thus reduces the company's tax burden. Therefore, in some cases, borrowing money from the company can be very beneficial. Read more about how to account for business loans here.
By lending to a limited company, the company pays for the loan, and the costs are indirectly shared between the owners, with large owners paying a larger share and small owners paying a smaller share.
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Personal guarantees are in principle always required for start-up companies. This is not surprising, as new businesses often have very small capital assets. Unfortunately, it is often in the start-up phase that limited companies need extra money to get their business off the ground.
In order for limited companies to be allowed to borrow money, the company owner or another person must often provide a personal guarantee for the credit. This means that you, as the creditor, assume the repayment obligation and the limited company is unable to repay the loan in full.
Unfortunately, business loans without personal guarantees are rare among small businesses and start-ups.
We only work with Swedish small businesses and loans to limited companies are our speciality. We love working with talented small business owners and making sure you get the funds you need to grow and thrive!
Tips! Read the post Substitute in a limited company - What are the risks?