What is an LLC loan?
An LLC loan is a small-business loan that provides funding for a limited liability company. LLC loans are available from banks, credit unions, online lenders and SBA lenders. In reality, these products are the same as any other type of business loan.
🤓 Nerdy Tip
A limited liability company is a type of business tax structure that functions like a hybrid between a corporation and a partnership. With LLCs, owners — known as members — are not individually liable for any of the business’s risks, and they are taxed on business profits through their personal tax returns.
Types of LLC loans
There are many types of business loans. Options that might make sense for an LLC include:
SBA loans
SBA loans for LLCs take many forms. The SBA 7(a) loan is perhaps the most well-known as it provides working capital and can also fund equipment purchases and expansion. Meanwhile, an SBA 504 loan is reserved for businesses that need to buy long-term, fixed assets such as facilities or machinery.
One downside to SBA loans is that getting approved and receiving funding can take a while. SBA Express loans, a type of 7(a) loan, offer faster funding, but smaller loan amounts — up to $500,000.
Term loans
These loans are lump sums of money that you repay (with interest) over a fixed repayment timeline. Eligible business owners can typically borrow anywhere from $2,000 to $5 million with a small-business term loan.
Funding generally comes through quickly, sometimes in a matter of days, if you go through an online lender. But their loans will also likely be more expensive than SBA options or those from a traditional bank.
Business lines of credit
A business line of credit can be a flexible alternative to a traditional business loan. Instead of a lump sum of money, business owners receive a credit line that they can draw on as needed.
Lines of credit typically range from $1,000 to $250,000. You’ll pay interest on the amount you borrow only, and smaller credit lines may not require collateral. You may also be able to qualify with a lower credit score.
Equipment financing
Equipment financing is a type of funding designed specifically for the purchase of machinery or equipment. You can get a loan equal to up to 100% of the value of the equipment you’re looking to purchase — and the equipment itself serves as collateral on the loan.
Like other LLC loan options, you repay an equipment loan over time, with interest.
Because the equipment serves as collateral, you may be able to qualify for this type of financing even if you’re a newer business or don’t have a perfect credit history.
Business vehicle financing
Business vehicle loans are used to purchase cars, vans, trucks and other vehicles for your business. Some lenders may allow you to finance up to 100% percent of the purchase price and offer repayment terms up to 72 months.
Because the vehicle you purchase serves as collateral, the interest rates for auto loans tend to be lower than unsecured business loans.
» MORE: Best bad-credit business loans
Commercial real estate
Commercial real estate, or commercial mortgage loans are larger, long-term loans designed for the purchase of commercial property. They can be used to buy office space, storefronts, restaurants or even land. They can also go toward refinancing other commercial real estate loans.
Commercial real estate loans typically require good credit and a down payment between 25-30%, though the actual amount may vary based on the lender and your business. Rates may fall anywhere between 3% and 12%, though the current average for a traditional lender is 7%.
Invoice factoring
This type of business financing leverages unpaid invoices to cover short-term needs. The business owner sells their outstanding invoices to a factoring company for a reduced price — discounts often range from 1% to 5% — in return for upfront cash.
Invoice factoring is ideal for businesses whose customers are other businesses.
Merchant cash advances
A merchant cash advance (MCA) isn’t technically a business loan. Instead, it’s a type of financing where a merchant cash advance company gives you an upfront sum of capital that you repay using a percentage of your credit card sales, plus a fee.
MCAs tend to fund quickly and have flexible qualification requirements, but they’re also one of the most expensive types of LLC financing. You’ll want to look at all of your other options before considering an MCA.
How to get an LLC business loan
1. Review LLC business loan requirements
Understanding typical business loan requirements can give you a solid idea of the types of financing that will likely be available to your LLC. Although qualifications vary from lender to lender, they’ll likely consider:
Personal credit score. You’ll likely need a personal credit score of at least 690 to qualify for business loans with the most competitive rates and terms. You can get a free personal credit score with NerdWallet and review your business credit score through Equifax, Experian and Dun & Bradstreet.
Time in business. Banks and SBA lenders usually lend to businesses that have been around for at least two years. Online lenders offer more flexibility to newer LLCs. For example, OnDeck’s term loan requires
12
months in business, while Fundbox’s business line of credit is available to businesses that have been in operation for just6
months.
Annual revenue. Lenders might require you to meet a minimum annual revenue threshold to show the strength of your business finances. Banks will likely ask you to meet higher minimums, whereas online lenders may be more flexible. If you are a new LLC that doesn’t have established finances, you may need to opt for financing options that rely on your personal credit, like a personal loan for business or business credit card.
2. Determine the right financing option
Every business’s funding goals are different. You should think about what type of loan you want and can qualify for, how much funding you need and how fast you need it.
For example, if you don’t have the time in business or credit score to qualify for an SBA or bank loan, then an online term loan might be an option to consider.
You should also evaluate how much debt you can afford. A business loan calculator can help you estimate interest costs and monthly payments. You don’t want to take out a new loan if you won’t be able to pay it back.
3. Compare lenders
Once you have an understanding of your funding needs and qualifications, you can begin researching different small-business lenders. You should compare several options — considering factors such as interest rates, repayment terms, funding speed and loan amounts — to decide which lenders are best for your LLC.
It can also be helpful to read customer reviews to get a sense of a potential lender’s credibility and reputation. Be wary of any companies that promise “guaranteed approval” or “no credit check,” as these may be predatory lenders looking to take advantage of businesses that are having trouble qualifying for other types of financing.
4. Gather documentation
Most lenders will require you to provide some, if not all, of the following as part of your LLC loan application:
Personal information about you and any other members of your LLC.
Basic business information and paperwork, such as your employer identification number, LLC articles of organization and business license.
Business plan.
Personal and business bank statements.
Personal and business tax returns.
Business financial statements (e.g., profit and loss statement, balance sheet).
Collateral information, if applicable.
It’s important to note that while you may have formed an LLC to limit your personal liability, most business loans require you to sign a personal guarantee. This agreement means you’ll be held personally responsible for repaying the loan if your business is unable to do so.
5. Apply for your loan
After collecting all the necessary paperwork, you’ll complete and submit your loan application. Online lenders will allow you to apply online and may give you the option to digitally connect your financial accounts in lieu of uploading the required documentation.
Although some bank and SBA lenders may offer an online application process, others may require you to visit a bank branch to apply in person.
6. Review your loan agreement and receive funds
Online lenders may be able to approve and fund your application in as little as 24 hours. Bank and SBA loans, on the other hand, may take anywhere from a few weeks to a few months to fund.
In any case, before signing a business loan agreement, make sure you thoroughly review the terms and conditions and reach out to your lender if you have any questions or concerns.
After you’ve signed the agreement, your lender will release your funds.
» MORE: How to get a business loan
Alternatives to LLC loans
If you don’t think you can qualify for an LLC business loan — or simply want to explore other financing solutions — here are a few to consider:
Microloans. These are small-amount loans typically offered by nonprofit lenders. Microloans are often geared toward traditionally underserved borrowers, such as those in low-income communities and those with limited credit histories.
Personal loans. New LLCs or single-member LLCs with strong credit may consider a personal loan for their business. These flexible loans can offer affordable rates, but will put your personal credit at risk if you can’t pay.
Small-business grants. Grants offer a free form of financing that doesn’t need to be repaid. Although it can be time-consuming to search and apply for small-business grants, they can be an ideal option if you can secure them.
Business credit cards. Although you never want to exclusively rely on a business credit card for financing, these products can be useful for funding everyday purchases. Credit cards with a 0% intro APR period can be a particularly good option for startups, as long as you don’t build up too much debt that you can’t repay.
Find the right business loan
The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose. NerdWallet recommends comparing small-business loans to find the right fit for your business.
