LLC loans: How to get funding for your business (2024)

LLC loans provide financing to limited liability companies (LLCs). You can use an LLC loan for various purposes, including improving cash flow, purchasing equipment and expanding operations. As with any other type of loan, you’ll need to meet a lender’s criteria for credit, income and other financial requirements to qualify.

You can find LLC loans from banks, credit unions, online lenders and US Small Business Administration (SBA) partners. Here’s a closer look at these loans, including how they work and tips for finding the best option for your business. If you’re already well-versed in LLC loan basics, you may want to skip to our primer on comparing the best lenders.

Refresher course: What are LLC loans?

LLC loans are useful for businesses that are structured as LLCs, but they’re essentially the same as other business loans. They typically offer lump-sum, upfront financing that you repay over a certain number of years, along with interest charges and any associated fees. Business lines of credit are also an option if you prefer to borrow money on an as-needed basis.

You can use an LLC loan for several purposes, including:

• Working capital to cover operational costs
• Marketing your business
• Major purchases, such as equipment or inventory
• Commercial real estate
• Refinancing or consolidating business debt

Note that your company’s limited liability structure may not extend to an LLC loan.

“Lenders may require a personal guarantee for an LLC loan, keeping the guarantor liable for loan repayment with personal property and assets in the event of the business’s failure,” said Los Angeles-based certified financial planner Ohan Kayikchyan.

If you don’t have the means to pay back the loan, the lender can pursue repayment from your personal assets if you’ve signed a personal guarantee.

6 types of loans for an LLC

1. Term loans

Term loans are a straightforward borrowing option. They offer a lump-sum amount that you repay over time with interest, usually on a monthly basis over several years. You can find term loans from banks, credit unions and online lenders.

Banks tend to have stricter borrowing requirements and slower processing times than online lenders, but they may offer better interest rates and lower fees. But if you don’t have strong credit or need a loan quickly, an online term loan may be preferable. You can often borrow anywhere from a few thousand dollars to $1 million or more.

2. SBA loans

Backed by the US Small Business Administration, SBA loans provide funding for working capital, equipment, fixed assets and other expenses. There are various types of SBA loans, including 7(a) loans, 504 loans, express loans and microloans.

You can apply to SBA partner lenders to determine your rates and terms. Some loans are available up to $5 million, while SBA microloans max out at $50,000. Expect strict borrowing requirements and a lengthy application process, though express loans come with faster funding.

3. Business lines of credit

If you prefer a more flexible approach to borrowing, a line of credit offers funds on a revolving basis that you can draw on as needed and repay as you go. You can find lines of credit from various lenders, and the SBA also offers five- and 10-year business CAPlines.

4. Equipment financing

If you need to purchase a vehicle, refrigerator or other equipment for your business, an equipment loan can help you finance the cost. Equipment loans are typically secured by the assets you purchase with them. You’ll pay back the amount over time, though the lender can seize your equipment if you default on the loan.

5. Invoice factoring

If your customers are other businesses, you can get relatively fast access to cash with invoice factoring. This involves selling your unpaid invoices to a factoring company for 80% to 95% of the total invoice amount. The company will send the remainder once your customers pay their invoices, minus a factor fee in the range of 1% to 5%.

6. Merchant cash advance

If your customers pay via credit card, a merchant cash advance (MCA) could be a quick (though potentially expensive) option. With this approach, an MCA company lends you money, and you repay it with a percentage of your credit card sales. Merchant cash advances may be a good option if you don’t have good enough credit to qualify for an LLC loan or need funds ASAP, but they can come with high fees.

Top lenders for LLC loans — and how to compare them

Before selecting an LLC loan, it’s worthwhile to shop around and compare options from multiple lenders.

“With the internet, it’s easier than ever to compare LLC loans offered by various institutions, both brick-and-mortar and online banks and credit unions, before making a final decision on where to borrow,” said Kayikchyan.

Here are CNN Underscored Money’s picks for the best small business loans:

As you compare LLC loans, here are some tips:

• Eligibility: Consider lending criteria to ensure you can meet the requirements for credit scores, revenue and time in business. For example, many lenders require that your LLC has operated for six months to two years, though some lenders, such as Finance Factory, waive this requirement.
• Loan details: Finding a competitive interest rate will decrease your borrowing costs. You also want a repayment term that works for your company’s budget and will allow you to comfortably afford monthly payments.
• Fees: Be wary of extra charges, such as origination fees or prepayment penalties. Comparing APRs instead of interest rates will give you a more complete picture of a loan’s cost since it accounts for annualized fees. If a lender advertises factor rates, ask it to calculate its APR so that you can make an apples-to-apples comparison to other lenders’ offers.
• Speed: How quickly a lender can fund a loan may also factor into your decision, particularly if you’re borrowing for an urgent need. The best fast business loans have streamlined applications and disbursem*nts within a day or two of approval.
• Red flags: Beware of lenders that make promises that sound too good to be true, such as guaranteed approval for loans without a credit check. These lenders could be predatory and looking to take advantage of business owners who have weak credit or an urgent need for a loan.

Eligibility criteria for LLC financing

Unlike true no-doc business loans, LLC loan applications require significant documentation.

How you measure up against the following business loan requirements will determine whether you’re approved for a loan, and at what rates and terms:

• Credit scores: Lenders typically review your personal credit to assess your risk as a borrower. If available, they may also look at your business credit score, which is largely based on how your company manages debt. Good credit scores will make it easier to get approved and access better rates. If you have low credit scores, you may be able to strengthen your application by applying with a creditworthy co-borrower.
• Business revenue: You’ll also provide financial statements that detail your company’s revenue, expenses and profitability. Lenders want to confirm that you have the means to repay your loan.
• Time in business: Some lenders require that you’ve been in business for at least two years to qualify for an LLC loan. However, some lenders will offer loans to startups without a long track record.
• Industry type: The industry that your business is in may play a role in whether you can qualify for a loan and how much you can borrow. Lenders prefer industries with a high potential for growth and relatively low risk, and may not lend to gambling, cannabis and p*rnography-related businesses.
• Business plan: A well-researched and structured business plan can also reassure a lender that your LLC will be successful. Your business plan should include market research, revenue projections and strategies for meeting your business goals.
• Down payment: You may have to make a down payment to borrow an LLC loan. For instance, some SBA loans require 10% down.
• Collateral: Secured loans, such as equipment loans, ask you to back your loan with an asset. Adding collateral to your loan could help you access lower rates or higher amounts (and make up for lower credit scores), but you risk losing the asset if you default on the loan.
• Personal guarantee: If the lender asks for a personal guarantee and you agree to it, the lender can come after your personal assets or property if you default on the loan.
• Debt-to-service coverage ratio (DSCR): DSCR compares your company’s cash flow with its debt obligations. Lenders want to make sure yours isn’t too high to pay back additional debt.
• Legal documents: A lender will likely ask to see documentation confirming your LLC’s legal status and any permits that your business must have to operate.

How do I write an awesome business plan? 8 steps to success

1. Give a concise executive summary. Spark interest in your business with a high-level summary of your company and its mission.
2. Follow up with a company overview. Provide more details about the history and strengths of your business.
3. Highlight your products and services. Explain what you do and how it meets the needs of consumers.
4. Show your work. Give a market analysis that includes research on trends, growth outlook and your competitors.
5. Share your marketing and sales plan. Outline the steps you’ll take to expand your client base and sell your products.
6. Review your company’s organization. Provide an organizational chart or explain how departments or teams are structured in your business.
7. Describe day-to-day operations. This may include details about your location, equipment and inventory needs.
8. Explain your funding request. Explain how you’ll use loan funds and your plan to repay them. Even better if you can include revenue projections for the next several years.

Alternative financing options for LLCs

5 steps to applying for an LLC loan

Applying for a small business loan varies by loan type and lender, but here’s what you can expect:

1. Determine how much you need to borrow. Evaluate your financial needs, as well as how much you can afford to repay. This step will also help you determine what type of financing — a term loan, line of credit or equipment loan — would be the best fit for your business.
2. Check your credit. Review your personal credit scores and reports to assess your creditworthiness for a loan — AnnualCreditReport.com is a good place to start. If you have a business credit score, review that as well to see how it could impact your chances of approval. Access your business credit via Dun & Bradstreet, Experian or Equifax.
3. Compare multiple lenders. Research different banks, credit unions and online lenders to see what each offers in terms of loan amounts, interest rates and repayment options. You might also read customer reviews to see what other borrowers have to say.
4. Gather your documentation. This might include bank statements, tax returns, a business plan, business licenses, permits and other legal documents for your LLC.
5. Submit a loan application. You may be able to apply online, or some lenders may require an in-person visit. You’ll provide all the information the application requires and upload your verifying documents. Depending on the lender, it could take a few days, weeks or even months to approve, process and fund your LLC loan.