When it comes to business financing, limited liability companies (LLC) are eligible for most options — almost all business lenders work with this business structure. You can use an LLC business loan to buy equipment, finance inventory, expand your operation and more.
Unlike sole proprietors or partnerships, LLCs typically have an easier time finding business loans through traditional lenders like banks and credit unions. But if your company is new or it’s just you, you may have trouble qualifying for traditional financing. Banks typically require your company to be profitable and in business for at least five years. If your LLC doesn’t meet that criteria, an online or community lender may be a better choice.
What is an LLC business loan?
An LLC business loan is the same as any other business loan. Some lenders may state that they offer LLC business loans for marketing purposes, but lenders don’t typically offer loans or products that work differently for LLCs. Having an LLC isn’t usually required for a small business loan, either.
Most small business loans have requirements around revenue, time in business and credit score minimums. So if your LLC meets the lender’s requirements, you’ll apply and get funds like a non-LLC business.
However, even with an LLC, many small business loan providers still require a personal guarantee. So while your LLC may protect your personal assets, a small business loan personal guarantee may still leave you personally responsible for the loan if you can’t repay.
Types of financing available to LLCs
As a small business owner, there are several different types of business loans and financing to consider that can offer your business quick cash-flow loans, each with varying interest rates and loan repayment terms.
Term loans
A term loan involves borrowing funds in one lump-sum loan and repaying it over a few years, usually in monthly installments. Banks, credit unions and online lenders are all likely to offer term loans.
Term length can range from two years for short-term loans to 25 years for long-term loans. Amounts also range widely. Online lenders typically offer loans up to $500,000, but banks can fund loans in the millions. Rates are fixed and largely depend on your revenue, debts and loan amount. They typically start at around 5% to 8%.
Must read Best business loans
Lines of credit
A business line of credit allows you to borrow as needed and repay what you’ve borrowed — similar to a credit card. Credit limits can range from $1,000 to $250,000 and typically have variable interest rates.
Many lines of credit are revolving, so once you pay off what you’ve borrowed, your credit line replenishes. There are also nonrevolving lines of credit, meaning the balance doesn’t replenish once you’ve withdrawn your credit limit. Unsecured and secured credit lines exist as well, often with the option to back up the line of credit with business assets.
An LLC line of credit is a great option for covering cash flow in slow reason, a safety net for the unexpected, covering repairs or paying for ongoing upgrades. However, they usually come with a variety of fees, such as maintenance fees, annual fees or draw fees.
Dive deeper Guide to business lines of credit
SBA loans
The Small Business Association (SBA) generally doesn’t offer small business loans directly but backs them to make it easier for companies, including small LLCs, to qualify for low-cost financing. Your LLC must be for-profit, located in the US and meets the SBA’s small business size requirements to meet the most basic requirements. But lenders typically also prefer to work with profitable LLCs and owners with good credit.
The SBA 7(a) loan program is the most popular choice and may be well-suited for an LLC, since the other programs, such as 504, are for equipment financing and estate financing.
However, SBA loans aren’t known for speed — it may take weeks or months to complete the paperwork and finish the process. If you’re a small operation with limited resources, consider using a packaging service like SmartBiz offers to cut down on the application time.
Dive deeper SBA loans guide
Invoice factoring
Invoice factoring is a short-term financing option that offers an advance on unpaid invoices from other businesses or government contracts. This type of financing isn’t a loan, so there are no interest charges, but you’ll pay fees. Most companies charge a fee that’s a percentage of your total invoices.
You may also be required to sign a contract, often between six months to a year, and many factoring companies have minimum and maximum invoice value requirements to meet. This option also isn’t available to LLCs that serve consumers rather than other businesses.
Dive deeper Compare invoice factoring companies
Merchant cash advances
Merchant cash advances offer easy-to-qualify for emergency financing to LLCs in retail and other consumer-facing industries. It’s an advance on your credit and debit card sales, and the amount you can get is based on your monthly credit card sales. Funding can be quick, collateral isn’t typically required and merchant cash advance companies generally don’t require a credit check.
Instead of paying interest, you’ll pay a factor fee or factor rate, usually starting around 1.09 to 1.15 that’s simply multiplied by your loan amount. Merchant cash advances are considered one of the most expensive types of business financing and may be best suited for emergencies.
Dive deeper Compare merchant cash advances
Vehicle and equipment financing
Vehicle and equipment financing can be used to purchase expensive equipment for your LLC, such as tractors, restaurant equipment, computers or to finance other big-ticket business items like commercial trucks. Similar to a mortgage or auto loan, the equipment loan is secured by the asset you’re buying.
Equipment financing is typically much easier to qualify for than other unsecured business loans, simply because you’re backing the loan with the item you’re buying. Most equipment loans come with fixed rates, and the term is most often determined by the longevity of the equipment you’re financing.
Many equipment companies offer in-house financing, but you can also finance equipment through online lenders or other lending institutions.
Dive deeper Top equipment financing lenders
Inventory financing
Does your LLC get a lot of orders, but you’re often lacking in inventory to back it up? Consider inventory financing, which is specifically used to buy products with the intention to sell. This type of business financing may be best suited for growing businesses that don’t have the cash flow or funds to meet demand.
With inventory financing, the inventory is collateral on the loan, making it a secured option — which can also make it easier to qualify for than unsecured loans or financing.
However, inventory financing typically can’t be used for perishable goods, so restaurants, groceries and other similar LLCs may want to consider other options.
Dive deeper Guide to inventory financing
Microloans
If your business needs a small loan under $50,000 or so and you’re unsure of your ability to qualify with a traditional lender, then a microloan might be worth checking out.
As the name suggests, microloans are small-dollar business loans. They can be available through a Community Development Financial Institution (CDFIs), peer-to-peer lending platforms or online lenders. Some online lenders, such as Kiva, also offer interest-free microloans that are crowdfunded. The SBA also offers a microloan program, often used by startups.
LLC business loan requirements
Small business loan requirements for LLCs vary depending on what you’re getting — such as equipment financing or a term loan — but you can expect these general requirements from most business loan providers:
- At least 12 months in business
- Minimum $100,000 in yearly revenue
- Good credit, 670 or higher
- No recent bankruptcies or active bankruptcy
- Collateral and a personal guarantee
Before you apply with a lender, it wouldn’t hurt to double-check that small businesses and LLCs are eligible. It’s not super common, but there are a few lenders that only lend to corporations.
Additionally, if you have an existing relationship with a bank, such as an active business checking account or previous borrowing history, that bank might be a good first step. Most business loan providers prefer to lend to businesses and LLCs they’ve worked with before.
Dive deeper Best business bank accounts for LLCs
Pros and cons
Business loans can jumpstart your LLC or keep things moving, but keep these benefits and drawbacks in mind.
Pros
- Many options. Banks, credit unions and online lenders all may offer business loans. There are also SBA business loans to check out, so there’s no shortage of options.
- Similar requirements overall. Most business loan providers have similar requirements, so your rates and terms are largely dependent on your creditworthiness.
- Flexible use. Many business loans offer flexibility in how you want to use the funds, such as a credit line, credit card or term loan.
Cons
- Long turnaround time. Compared to personal lending options, business loans tend to take longer to complete.
- Personal guarantee. While your LLC is protecting your personal assets, most business loan providers still require a personal guarantee, putting your personal assets at risk.
How to get an LLC business loan in 4 steps
A little preparation can go a long way in getting a business loan, and it starts with getting your documentation in order.
1. Gather documents.
Business loan providers will likely ask for documentation such as state-issued IDs, personal and business bank statements, tax returns, profit and loss statements and possibly a business plan. And if you’re getting a secured loan, it may also be wise to get that collateral appraised so it’s all set when you apply for a loan.
Many business loan providers also require a personal guarantee. This means that you and other majority owners of your LLC will also need to provide personal documentation to prove that they have the assets to guarantee the loan.
2. Find the right lender.
Banks tend to offer the lowest rates, but prefer to work with established businesses and clients with whom they have an existing relationship. Credit unions may also have low rates, but not many offer a variety of business loans. Online lenders tend to have the most flexible eligibility requirements and may accept lower credit scores, but may come with higher interest rates.
Be sure to compare multiple offers and consider prequalifying with a soft credit check for a more accurate comparison.
3. Check your credit score.
With a lender in mind, review your credit score to see if it’s up to snuff. Most business loan providers are going to require a good to excellent personal credit score of at least 670. Recent bankruptcies may also hinder your ability to get a loan, as well as other serious hard marks in your credit history. Other majority owners will also need to meet credit score requirements.
If you’re worried about a business credit score, many business loan providers don’t check it. However, you can review your business credit score with Dun & Bradstreet, Equifax Business or Experian Business.
4. Apply and review.
Timing can make a difference in your chances of approval. You may want to apply during your LLC’s most profitable period to increase your chances of meeting revenue requirements.
Turnaround time for a business loan can be anywhere from a few days to several weeks, with SBA loans typically leaning toward weeks or months before funds arrive. Online lenders tend to have the fastest turnaround times, often because they feature no-doc business loans that connect directly to your business’s accounting software, speeding up the underwriting process.
Business loan alternatives for LLCs
If your LLC has less than 12 months in business, you may struggle to get approved for a business loan. Some business loan providers require at least two years in business. But if you need funds, there are alternatives to consider:
- Personal loans — These lump-sum loans can be used for most purposes and are typically unsecured. Most lending institutions offer personal loans, with amounts usually up to $50,000 or even $100,000. Rates run from 6% to 36%, with terms from 3 to 7 years in most cases.
- Business credit cards — Business credit cards may be a great option for newer businesses looking to build a business credit score and get a flexible credit line.
- HELOCs — A home equity line of credit is a borrowing method that uses your home’s equity as collateral. Most lenders require at least 20% equity to qualify, and it offers a flexible way to borrow with variable interest rates.
- Business grants — If you’re a startup or a nonprofit business, consider looking into business grants. You don’t have to repay grants, so it’s a great way to fund a new business venture if you’re lacking capital, but grants tend to have strict eligibility requirements and their availability is limited.
Bottom line
Getting a business loan for your LLC isn’t much different than getting a loan as a non-LLC. However, if the whole point of registering your business as an LLC was to protect your personal assets, then you may want to consider a business loan without a personal guarantee.
Read our detailed business loan guide for more information and comparisons.
