What lenders look at when your limited company applies for a loan

Every lender has its own rules, but most UK business lenders ask the same basic question: can this company afford to repay, and how likely is it to keep doing so? To answer it, they look at a fairly predictable set of things. Knowing what they are means you can get your paperwork in order before you apply, explain anything unusual up front and avoid surprises.

1. How long the company has been trading

Lenders like to see a track record. A company that has filed accounts and has a history of bank statements gives them real evidence to judge it on. Newer companies can still find finance, but the choice of lenders tends to be narrower, and the lender may lean more heavily on the directors' own history and on any security offered.

Your company's incorporation date is public at Companies House, so lenders can check it easily. If the business traded as a sole trader or partnership before it became a limited company, say so: some lenders will take that earlier history into account.

2. Turnover and profit

Lenders want to see that money is coming in, and that enough of it is left after costs to cover repayments. They will usually look at:

• Filed accounts at Companies House
• Management accounts for the period since your last filed accounts, if you have them
• Business bank statements, often for the most recent few months

Bank statements matter a lot, because they show what is actually happening now. Lenders look at regular income, the balance through the month, whether the account goes overdrawn, any returned payments and the repayments you already make.

If there's a dip in your figures for a good reason, such as a one-off contract ending, a seasonal quiet spell or an investment in new equipment, be ready to explain it. A short, honest explanation is better than leaving a lender to guess.

3. Existing borrowing and affordability

Lenders check what the company already owes: loans, overdrafts, credit cards, asset finance, cash advances and any amounts owed to HMRC. They want to be confident the new repayment fits alongside the existing ones.

If you have an agreed payment plan with HMRC (a "Time to Pay" arrangement), tell the lender. Hiding it rarely works, because it often shows on bank statements, and being open about it is better for trust.

4. Credit history: the company and the directors

Lenders search credit reference agencies such as Experian, Equifax and TransUnion. They look at the company's own credit file and, for most small and medium-sized limited companies, the personal credit history of the directors too.

Things that can count against an application include:

• County Court Judgments (CCJs) against the company or a director
• missed or late payments on existing credit
• previous insolvency involving the company or its directors

None of these automatically rules you out, but they narrow the options. It's worth checking your own personal credit report before you apply, so you know what a lender will see. If you find a mistake, you can ask the agency to correct it.

Ask any broker or lender what kind of credit search they will make and when. Some can give an initial indication using a "soft" search, which other lenders can't see, before a full application leads to a "hard" search that does appear on the file.

5. The company's public record

Companies House shows whether your accounts and confirmation statement are up to date, who the directors are and whether there are any charges registered against the company. Overdue filings can make a lender cautious, because they suggest the company's affairs may not be in order. If anything is overdue, it's worth bringing it up to date before you apply.

6. Directors and personal guarantees

For many limited company loans, lenders ask one or more directors to give a personal guarantee. They may ask whether directors own their homes, because it gives a fuller picture of their personal position. Being a homeowner isn't a requirement for most business finance, but it can widen the choice of lenders, particularly for larger amounts.

If a personal guarantee is part of the deal, read it carefully and consider taking independent legal advice before you sign.

7. What the money is for

Lenders want to understand the purpose: buying stock, a vehicle or equipment, covering a VAT bill, bridging a cash flow gap, or funding growth. The purpose can point to the right type of finance. Equipment and vehicles often suit asset finance, while businesses that take a lot of card payments may be offered a merchant cash advance. A clear, specific purpose makes an application easier to assess.

How to get ready before you apply

• Bring your filings up to date at Companies House.
• Gather your documents: recent business bank statements, your latest filed accounts and up-to-date management accounts if you have them.
• Check your personal credit report and correct any errors.
• List your existing borrowing, including any HMRC payment plans.
• Know how much you need and why, and how the repayments will fit your cash flow.
• Prepare short explanations for anything unusual in your figures.

How LendFinder fits in

LendFinder is an introducer, not a lender or broker, and we only work with UK limited companies. When you make an enquiry, we look up your company at Companies House for you and ask a few questions about trading, turnover and what the finance is for. Making an enquiry with us won't affect your credit score. We then introduce you to a partner broker whose lenders suit a business like yours. Our partners may pay us a fee; you don't pay us anything.

Any finance is subject to status and the lender's own checks. If you're ready, you can start an enquiry in about a minute.