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The Ultimate Guide to Securing an LLC Business Loan

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

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

In theory, 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 because you’ll usually 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.

Therefore, if you’re trying to finance your business, it’s worth familiarizing yourself with LLC business loans. This blog post will educate you on LLC business loans to determine if it’s the right loan 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. 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 seeking any other business loan. You’ll need to determine your working capital needs, compile paperwork, contact multiple lenders, and complete their application processes.

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, bank loans 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 you complete the actual loan application. These steps are detailed below:

1. Review Your Credit Profile

Before applying for any loan, review your business and personal credit profile. Lenders will evaluate your personal credit unless your company has a long, successful track record and strong credit history.

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 them, and how you’ll pay them back.

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

3. Identify Your Preferred Type of Business Loan

There are many LLC business financing options. Each one works differently regarding loan 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: Banks, online lenders, credit unions, and alternative lenders typically offer this type of financing. 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 challenging to qualify for, but they’re typically the most affordable because of the SBA guarantee.
  • 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 based on the value of your invoices.
  • Merchant cash advances: Similar to invoice financing, merchant cash advances are an advance on your credit and debit card sales. Any business with sufficient credit card sales may qualify for a merchant cash advance.

4. Shop around and submit your applications

As with any 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. Make sure you have your paperwork ready, ask questions about the application and funding process, and know what to expect.

LLC Business Loans: One of Many Funding Options

Determining 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 critical factors affecting your long-term growth prospects.

Before you accept an LLC loan offer, you should thoroughly review the lender’s terms and conditions. That way, you can be confident in your decision and that this is the right financing option for your growing business.

Editor’s Note: This post was updated for accuracy and comprehensiveness in April 2022.

Fora Financial

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