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LLC Business Loans: The Ultimate Guide
February 26, 2021
LLC Business Loans - The Ultimate Guide

LLC Business Loans: The Ultimate Guide

Limited Liability Company (LLC) business loans function just like regular business loans. You get approved, you receive additional funding, and then you make regular payments.

The difference comes down to who (or what) is liable for the loan. Specifically, with an LLC business loan, the LLC is technically the borrower.

In theory, this means that if your LLC gets approved for a business loan, the lender can only come after the LLC’s assets. Unfortunately, the reality is more complicated than this because usually, you’ll need to provide a personal guarantee. This eliminates your liability protection, but more on that later.

Even without liability protection, there are benefits of LLC business loans. In addition to tax return savings, getting a business loan with an LLC helps you build your business credit.

So, if you’re trying to finance your business, it’s worth familiarizing yourself with LLC business loans. This post will educate you on LLC business loans so that you can determine if it’s the right funding option for you.

What is an LLC Business Loan?

An LLC business loan is money provided to a business, in this case an LLC, in exchange for repayment, plus interest. LLC business loans may take many different forms and be available from all kinds of lenders. Online micro-lenders, traditional banks, and even the SBA provide LLC business loan programs.

As mentioned above, you can get a small business loan with an LLC.

However, unless your business has a long, successful financial record, you’ll need to provide a personal guarantee. By personally guaranteeing a loan, you agree that your lender can come after your personal assets in the event of a default.

In effect, this eliminates any liability protection provided by taking the loan out as an LLC.

How to Get a Loan for an LLC:

The process of finding, applying for, and getting approved for an LLC business loan is similar to the process for any other business loan. You’ll need to determine your financing needs, gather paperwork, contact multiple lenders, and go through their application processes.

LLC-Business-Loans

What Are Typical Qualifications for an LLC Loan?

The qualifications for LLC business loans vary depending on the type of loan and lender.

For example, LLC business loans from banks typically have more stringent requirements than LLC loans from online lenders. Similarly, assuming all else is equal, large LLC business loans will have more stringent qualification criteria than small loans.

How to Apply for an LLC Loan

Application processes vary from lender to lender for LLC business loans. However, there are several steps you should take before the actual application. These steps are detailed below:

1. Review Your Credit Profile

Before you start applying for any loan, review both your business and personal credit profile. Unless your business has a long, successful track record and strong credit, lenders will evaluate your personal credit.

Knowing how strong your credit profile is will help you find the right loan. Plus, it’ll give you time to improve your credit score, which will benefit your overall business.

2. Determine Your Use of Funds

Before providing money to your bank account, traditional lenders like banks and credit unions will typically want to see a business plan. This plan should explain what you need the funds for, how you’ll use the funds, and how you’ll pay them back.

Even if you’re not applying through a traditional lender, though, determining your use of funds is an important planning step.

3. Identify Your Preferred Type of Business Loan

There are many LLC business financing options. Each one works a little differently in terms of amount, cost, eligibility, use of funds, and more.

Before you apply for a loan you should familiarize yourself with the following types of LLC financing options:

  • Term loans: These loans are typically offered by banks, online lenders, credit unions, and alternative lenders. Term loans usually have the lowest interest rates and the strictest qualification criteria, second only to SBA loans.
  • SBA loans: Also offered by participating banks or credit unions, SBA loans are term loans or lines of credit guaranteed by the SBA. These loans are competitive and tough to qualify for but, because of the SBA guarantee, they’re typically the most affordable.
  • Lines of credit: A small business line of credit allows you to access cash as needed, pay it off, and use it again. Compared to term loans, lines of credit have much more lenient eligibility requirements.
  • Invoice financing: Also called receivable financing, invoice financing is a loan backed by your outstanding invoices. It’s a short-term financing strategy that’s based on the value of your invoices.
  • Merchant cash advances: Similar to invoice financing, merchant cash advances are essentially an advance on your credit and debit card sales. Any business that has sufficient credit card sales may qualify for a merchant cash advance.

4. Shop around and submit your applications

As with any other financing product, you should shop around for your business loan. Once you’ve identified a few viable lenders, it’s time to submit your financing application.

Some lenders may accept loan applications online or over the phone. Others may require an in-person interview. In any case, make sure you have your paperwork ready, ask questions about the application and funding process, and make sure you know what to expect.

LLC Business Loans: One of Many Options

Figuring out the best way to increase your business’s cash flow is no small task. In addition to LLC business loans, there are many other ways to finance your business. Plus, your business’s capital structure is one of the most important factors affecting your long-term growth prospects.

If you’re looking for more resources to help you make an informed financing decision, try one of the following:

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].