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August 2023

How to get a Business Loan as an LLC

Wooden blocks spell 'limited liability company LLC' representing business loans."
Last updated June 14th, 2024

Many banks and lenders offer loan products for LLCs. The structure of LLCs means that you have to meet certain criteria in order to secure finance. Getting business loans can be a problem, especially in the current climate. Banks are still reeling from the crisis of 2007/08 and reluctant to lend money. Experts say that 80% of small business owners who apply for a bank loan get rejected. That’s why you need to be savvy about how you apply and what you apply for.

What is a Limited Liability Company (LLC)?

A limited liability company, or LLC, is a business that, while it has the limited liability typical of corporations, is taxed as if it were a sole proprietorship or general partnership. This means that the owners of an LLC are taxed as individuals rather than having the more complex tax liabilities of the owners of corporations but retain the limited liability of a corporation should the business be subject to any litigation.

The benefits are clear, but there are downsides to setting up your business as an LLC. Although you might have more flexibility in your tax liabilities and less paperwork than a corporation, the organization’s actual structure might lead to difficulties. If leadership roles are difficult to nail down, the decision-making process might be clouded, and investors might be deterred from supporting the company. You will have to pay self-employment taxes, and that may mean paying more tax than if you were part of a corporation.

So the decision of how to structure your company is not straightforward, but an LLC certainly is an attractive option for many and is often a stepping stone on the way to becoming an S-Corp.

Why do LLCs need business financing?

Nearly all businesses require extra cash from time to time. Even if you have the money available, it often makes more sense to take out a loan or other finance rather than reducing your working capital. The reasons you may need a loan are many and include:

  • Smoothing cash-flow
  • Buying inventory
  • Marketing strategies
  • Hiring more staff
  • Expansion
  • Remodeling
  • Machinery

What are the types of LLC loans?

LLC Bank Loan

An LLC bank loan is the first thing people think of when finance is mentioned and may well be a fit for your business. Certainly, a bank loan often carries low interest and generous repayment periods. However, the application process is often drawn out, and the qualification rigorous. You should be prepared for lots of paperwork and checks on you and your business. High credit scores and good profitability are pretty much mandatory.

A bank loan may be a good option for major spending such as expansion or real estate purchase but less so for buying inventory or helping with cash flow.

LLC SBA Loan

A Small Business Administration loan is the gold standard for term loans, particularly the 7(a) and 504 loan programs. The SBA doesn’t actually lend money, but the government guarantees a high percentage of the money lent by their lending partners. This means the risk is reduced for the lender, and they can offer low interest rates and good terms.

Be aware that they are famously difficult to qualify for. Though technology has recently accelerated the application process, it still tends to be lengthy and involved. You will need immaculate financial records and a good trading record of several years.

LLC Unsecured Loan

An LLC secured loan means not just having collateral but being willing to lose it in the event of repayment problems. Many business owners are loath to risk their house or car on a business venture and prefer to choose an unsecured loan. Although your assets aren’t on the line, an unsecured loan does incur higher interest than a secured loan as the risk to the lender is that much greater.

LLC Invoice Factoring

LLC invoice factoring involves selling your outstanding invoices to the finance provider. They then give you usually between 70% and 85% of the value and the remainder, less a 1-4% commission, on payment by your customer. Although LLC invoice factoring does mean you get the cash more quickly, it may harm your relationship with your customers. Introducing a third party into the picture may not be a good move.

LLC Line of Credit

An LLC line of credit works like a credit card. The provider gives you a credit limit, which you can dip into as needed, so long as you don’t exceed the maximum amount. You only pay interest on the amount you borrow, and as you repay the loan so that cash is available to borrow once more.

An LLC line of credit is an extremely flexible way of borrowing money and worth considering if you experience cash flow problems or unexpected expenses.

LLC Merchant Cash Advance

An LLC merchant cash advance can be of use if you suddenly need an injection of cash into your business. The money loaned is repaid by the lender automatically receiving a percentage of your credit and debit card receipts on a daily basis. An LLC merchant cash advance is usually very fast to apply for and get but often carries a penalty in terms of high interest rates.

How do you know which LLC Business Loan is right for you?

The method of funding you choose depends on many factors: What sort of business are you in, and how profitable is it? How much do you want to borrow? What do you need the money for? You need to consider all the variables before deciding what sort of loan to apply for.

If your LLC is successful with a good financial history and you have decided to expand, then a term loan or SBA loan may be perfect. If you just wish for a safety net to help cash flow, then an LLC line of credit may be a better solution. Make sure you take advice as there are tax implications with different finance products.

How to get a small business loan for LLC?

Once you have decided which sort of finance you need, you then have to choose which loan providers to approach. You are by no means limited to the big traditional banks and financial institutions. New finance providers are springing up all the time with different products often aimed at specific sectors. In fact, these alternative lenders are filling the gap in the market that the banks have left with their reluctance to lend money.

Some of these businesses utilize peer-to-peer lending models; others use crowdfunding while some match LLCs with entrepreneur investors. You may prefer the solidity of banks that have been around for decades, but many of the new loan companies are more in tune with small and medium-sized companies and may be more helpful to you and your LLC business.

How much capital does your LLC business need?

The amount of capital your LLC business requires will be important in your decision-making process. The sort of finance package you are looking for may well narrow down your options. There is a world of difference between wanting a few thousand dollars to help cash flow or buy some IT and the large sum needed to, for instance, buy land and build a new facility.

Don’t forget all LLC business loans cost money, so while you need to make sure you have enough for the proposed project, the more you borrow, the more you will have to pay back.

How to apply for an LLC loan?

Applying for an LLC loan depends very much on the loan provider and the finance product you opt for. An SBA loan or a loan from a traditional bank will likely have a long application process and tough requirements, certainly compared to alternative lenders.

Many of these online loan companies offer simple applications taking minutes to complete. They match that with a fast decision on your eligibility and get the cash into your business’s bank account in days or even hours.

Who is eligible to apply for an LLC business loan?

Any LLC business can apply for a loan. Some lenders are wary of lending to LLCs unless one or more of the owners personally guarantees the loan. If an LLC defaults then, although the business assets may be seized and sold, the directors cannot be pursued through the courts.

A loan for an LLC should be a management decision.

What documents do you need to apply for an LLC loan?

This will vary from lender to lender, but you will likely need all your financial records, bank statements, a government ID, tax number, and owner/credit verification. For large sums, you may need more information, including an accurate business plan that details your plans for the future. It’s always best to get these documents together before you start any application process.

Attaining loans for small and medium-sized businesses at traditional banks is often difficult, whether they are LLCs or not. But there is a wealth of new lenders online which are making it far easier for businesses to seek fast funding. You should work out exactly what you need to borrow, what sort of finance you prefer, and how much it is going to cost your business before applying. Again, make sure you have all the documents you need before you begin the application process.

While getting a business loan as an LLC can feel like you’re simply trying to jump through hoops, it will be worth it when you receive your funding and see your business flourish.

Can you get a business loan for a new LLC?

Yes, individuals who start a new limited liability company (LLC), have access to several different types of business financing including LCC loans, also known as small business loans. One of the most common ways new LLCs acquire financing is through the Small Business Association (SBA). The SBA offers a variety of loans from the SBA 7(a) loan to the SBA 504 loan, and finally the SBA Express loan.

SBA loans can be a little more difficult to qualify for as a new business owner, for that, there are several other types of financing available as well. Here is a quick breakdown of some of the types of business loans that LLCs can use to get up and running.

  • SBA 7(a) loan:?SBA 7(a) loans are issued by private lenders and backed by the federal government through the Small Business Administration. Loans can have loan amounts of up to $5 million. Loan terms are 25 years for real estate, 10 years for equipment, and 10 years for working capital and inventory loans. As of October 2022, rates can range from 8.5% to 11% depending on the loan amount and the length of the repayment period.
    • SBA 504 loan: SBA 504 loans are more commonly used for large purchases like real estate and heavy machinery. Most loans are capped at $5 million, however, some businesses can be approved for up to $5.5-million. Loan terms can be 10, 20, or 25 years and a required down payment of 10% to 20% most likely will be required.
    • SBA Express loan: SBA Express loans are quicker loans of up to $500,000 that can be approved and funded in a much shorter period of time. Other SBA loans can take weeks or even months to complete whereas SBA Express loans can see a response from the SBA within 36 hours if all the information on the lender-approved application is complete and accurate.
    • Term loans: Although term loans are typically more expensive than SBA loans, term loans are easier to qualify for. Qualifying loans can be for any amount from $2,000 to $5 million to be paid off over a fixed amount of time.
    • Equipment financing: Equipment financing is a special type of small business loan where the machinery and equipment purchased are used as collateral.? If you’re unable to pay back the loan on time, the lender can seize the equipment and sell it to recoup the loan balance.
    • Invoice factoring: If you’re a small business owner sitting on a stack of invoices with 90 or 180-day terms and you need to get paid now., you can sell your invoices to an invoice factoring company. The invoice factoring company will buy your invoices at a discounted rate, collect the amount owed from the customer, and receive a modest profit for their troubles.
  • Personal loans:?If you own an LLC and are struggling to obtain financing, you may need to consider a personal loan. Personal funds can be extended to your LLC, and at any amount necessary. Personal loans can be secured or unsecured, thus expanding options. As an individual you may have a good credit score and steady income or assets to back the loan. However as a new LLC you may be lacking in certain areas necessary to qualify or carrying too much debt. By taking out a personal loan, you can fund your LLC, just be sure to make on-time payments. To shop and compare personal loan offers, visit Acorn Finance.

Aside from these common types of LLC loans, a new small business may want to look into establishing a business line of credit and using business credit cards to pay for everyday expenses.

How do you get a business loan for an LLC?

The first step to getting a business loan for an LLC is to check and understand both your personal and business credit scores. Having an idea of where you stand can rule out some financing options that you may not qualify for and save you time. Knowing your credit scores can help your LLC determine the right loan option for your financial situation.

Once you have determined the type of financing you want to pursue, you can start to shop and compare lenders to see what kind of requirements they have and what kind of loan amounts, interest rates, and repayment terms they offer.

After you have found the lender you are willing to work with to acquire your business loan, the next step is to complete their business loan application and submit all of the required documentation. The time it takes to process your application and for you to receive your funding depends on what type of business loan you are applying for. Some term loans can be approved and funded within a few days whereas SBA loans, aside from the SBA Express loan, can take weeks or even months before you see the money.

How does an LLC loan work?

When it comes to LLC loans, loans taken out through the SBA, and term loans through banks and credit unions, should operate in the same way. Once a loan has been approved, the LLC will receive the funding they have been approved for and can begin to use the money to make the purchases they need. In exchange, the LLC will make payments on the loan over a predetermined amount of time. The LLC will be required to pay back the original loan amount plus the agreed-upon amount of interest within the agreed-upon amount of time.

Does an LLC have its own credit score?

Yes, an LLC does have its own credit score. When an LLC is first starting out, a large part of that business credit score will consist of your personal credit score. However, as the company begins to take out its own credit and establish its own credit history, the reliance on your personal credit history to acquire financing is less and less.

What credit score is needed for an LLC business loan?

If your business credit score is not established enough, lenders may use your personal credit score to determine financing eligibility. Even if you have an established business credit score, they may still also look at your personal credit score. To have an easier time getting an LLC business loan, you should have a minimum credit score between 680 and 700. That being said, some lenders may work with a borrower with a credit score as low as 640. The type of loan and the lender will impact the required minimum credit score.

What are LLC business loan requirements?

In addition to meeting the credit score requirements, you should expect to present the following documents when applying for an LLC business loan.

  • 12 months of personal and business bank statements
  • Two years of tax returns
  • Details of outstanding debts
  • A business plan
  • A copy of any licenses your business requires

Also, an LLC looking to qualify for an SBA loan must be registered as a legal for-profit enterprise, physically located in the US, and the LLC must demonstrate that the borrower has invested their own time and resources into the business.

How much loan can an LLC get?

When it comes to LLC loans or small business loans, the maximum loan amount typically caps out at around $5 or $5.5 million. Other financing options, like business lines of credit, can offer up to $1 million of financing for an LLC. Personal loans or term loans may have lower limits. Personal loans generally max out at $100,000.

Checkout these resources to see your options for securing the best rates for a business loan:
https://www.forbes.com/advisor/business-loans/best-online-business-loans/
https://www.nerdwallet.com/small-business-loans
https://money.com/best-small-business-loans/