How To Get a Business Loan with an LLC

Every business needs money to make investments, maintain operations, and expand market share. However, not every business has access to enough capital. Small business loans give businesses a quick fix if they do not have enough funds in their accounts. You can start a business solo and be a sole proprietor, but other business owners establish their businesses as LLCs. A limited liability company has many benefits, but business owners seeking loans may feel nervous about changing their company.

If you’re a small business owner who may register as a limited liability company, you might wonder if doing so will impact your ability to get a small business loan. Fortunately, you can get a business loan with an LLC. The legal status of your business will not be a factor for lenders. This article will explore how LLCs work and what is involved with getting a business loan with an LLC.

Understanding LLCs (Limited Liability Companies)

A limited liability company, or LLC, is a legal status for a small business that separates personal assets from business assets. This structure relieves the business owner or business owners of personal responsibility for their company debts. For example, if you establish your business as an LLC, it becomes separate from you, and it can own property and have its own bank accounts. Then, if financial problems occur within the business, creditors can only seek money or other assets owned by the LLC rather than from your personal accounts.

LLCs aren’t the only business structure available. Two common alternative business structures to an LLC are sole proprietorships and corporations. Sole proprietorships are the most affordable and flexible, but your personal assets are liable if your business gets involved in a lawsuit. Corporations provide the same type of legal protection as LLCs, but corporations require more paperwork and are more expensive. LLCs are a reasonable middle ground between sole proprietorships and corporations. If you register as an LLC, no other business in your state can use your LLC name, which can help you protect the brand of your small business.

Getting a Business Loan with an LLC: Overview

Banks, credit unions and online lenders each take risks when they lend money to small business owners. These lenders only give money to business owners if they feel confident about getting repaid. As a result, they will be less concerned about the size of your business or how it’s registered than if you’re equipped to generate the revenue necessary to pay back what you owe. If you fulfill the lender’s criteria and generate enough revenue to cover the monthly loan payments, you should have easier access to capital.

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Common Requirements for Getting a Business Loan with an LLC

Luckily, it’s not that hard for business owners to get a loan as an LLC. The common requirements for getting a business loan with an LLC are similar to most types of business loans offered to larger companies. However, some lenders give more weight to some requirements than others. Therefore, it is a good idea to review the requirements of each bank, credit union and online lender before submitting applications. Then, review these requirements and see if your LLC can satisfy them for the lender you choose to work with.

Use of Funds

Before you borrow money for your LLC, it’s a good idea to assess how you will use the funds. This exercise will help ensure that you don’t borrow too much or too little. Borrowing too much increases your interest payments, while borrowing too little will force you to pay your lender another visit.

When business owners know the loan amounts they need, it also prepares them for a lender’s questions. It’s common for lenders to ask borrowers about their business plans and use of funds before approving loan applications. Not every lender requires you to explain how you will use the funds, but it’s a good idea to prepare for this question just in case. A lender’s questions will also depend on the type of loan you want. If you need equipment financing, the lender will request proof of purchase to ensure the funds went to purchasing equipment for your LLC.

Personal and Business Credit Score

Your personal credit score is a gauge that lenders use to determine whether you are a good credit risk. Some lenders will consider your loan application even if you do not have a business credit score. However, a business credit score can help you access higher loan amounts and more choices.

If you don’t have a business credit score, don’t worry. You can still get a loan, and some business loans with personal credit score requirements can help your business credit score. However, your business credit score may not be established enough for lenders to use when deciding to offer your LLC a business loan. Therefore, do what you can to boost your personal credit score to qualify for lower interest rates and better loan terms. Even if you fulfill the minimum credit score requirement, you should still work on improving your credit score. For a business loan, you may be expected to have a credit score above 670 on a scale of 300 to 850, depending on the lender.

Business and Financial Documents

Your lender will require certain business and financial documents when you apply for a business loan. You should also have personal and business tax returns ready to go, as your lender will be expecting them. You may also need to include annual revenue statements or profit and loss statements. If your LLC is fairly new, revenue projections may be acceptable, but it depends on the lender. In addition, some banks will need to see your business plan, which includes a description of your business and marketing strategy. Finally, depending on the type of loan, you may need to submit accounts receivable and accounts payable reports.

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Collateral

Some business loans are only available if you can offer collateral in exchange for financial assistance. Collateral is assets you own that the lender can seize if you are unable to make payments on the loan. Some examples of collateral include cash, vehicles, property, equipment and intellectual property. Lenders generally prefer tangible assets they can resell if necessary.

Collateral loans increase the borrower’s risk, but it also results in lower interest rates. Lenders give more favorable rates for secured loans, especially if you have a good credit score. If you feel nervous about repaying the loan, you can extend its duration to reduce your monthly payments.

Other Helpful Documentation

Lenders may request additional business documents when you submit your loan application. These documents may include business licenses, operating permits for your LLC, and the employer identification number (EIN) for your LLC. The lender may also ask you to produce documents containing any existing loan agreements, leases and contracts you have with other businesses, if applicable. You can check the loan application process to see which additional documents the small business lender will expect.

What Type Of Business Loans Can You Get with an LLC?

There are many types of business loans you can get with an LLC. The key is to know how much money you need to borrow and your financial needs. This background information will help you apply for the optimal business loan.

Bank Loan

Your LLC can get a bank loan to finance your business, but traditional banks and credit unions have the most challenging requirements for their small business loans. Your company may have to be an established business with a good credit score. If you qualify for a bank loan, interest rates and other loan terms may be more attractive. The main disadvantages of bank loans are the challenging requirements and the time-consuming loan application process.

SBA Loan

You can get an SBA loan as an LLC but be prepared for a complicated approval process and lengthy application process. Only approved lenders can offer SBA loans. The lenders incur less risk since a big percentage of the loan amount is guaranteed by the U.S. Small Business Administration. If you meet the strict requirements to apply for an SBA loan, such as a good credit score and strong revenue, you might consider an SBA 7(a) loan, which is the most common type of SBA loan. With an SBA startup loan, you can borrow up to $50,000. SBA loans tend to have lower interest rates than competing financial products due to the U.S. Small Business Administration’s role.

Unsecured Loan

An unsecured loan is simply one that doesn’t require collateral. Rather than relying on your assets as a guarantee that you will repay the loan, lenders approve unsecured business loans based on your creditworthiness. A business credit card with revolving credit is a common type of unsecured loan that is less risky than a secured loan. However, less risk for the borrower means higher interest rates.

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Invoice Factoring

Invoice factoring is not a loan, but it’s one way to get cash to cover urgent business expenses. With invoice factoring, you sell outstanding invoices to a factoring company in exchange for the money you need. Invoice factoring might work for you if your main customers are other businesses. It is easier to qualify for than some other types of small business loans, but expect to pay high fees. The great thing about invoice factoring is that you won’t have to keep up with a fixed monthly payment or worry about interest rates. Once you sell your invoices, you can walk away without an extra financial obligation in your monthly budget.

Line of Credit

A business line of credit is similar to a credit card. Instead of borrowing a lump sum of money with a traditional business loan, you get a credit line that you can draw cash on as you need it. You only pay interest on the amount you borrow, and you may not have to offer collateral to obtain a line of credit. Small business owners can usually get a line of credit in any amount between $1,000 and $250,000. It might be something to consider if you need money for your LLC but don’t have a good credit score.

Even if you have a good credit score, a line of credit can still be attractive. Some business owners treat lines of credit like emergency reserves. You can use them when necessary, but until that day comes, you don’t have to pay interest. So a line of credit can be a useful alternative when you know you will need money in the future but not right now.

Merchant Cash Advance

A merchant cash advance is an expensive alternative to more traditional business loans. In fact, a merchant cash advance, or MCA, is not a loan at all. Rather, an MCA provider buys your future credit card and debit card sales at a discount. You get cash upfront from a merchant cash advance company and repay it, plus a fee, using a percentage of your credit and debit card sales. It’s the last resort for businesses that need cash due to an APR that can exceed 100%. Merchant cash advances have low credit score requirements and are essentially payday loans for business owners.

How To Apply for a Business Loan with an LLC

Business financing is easy when you partner with an online lender like Biz2Credit. Their application process is quick, and you can get funding approval in as little as 24 hours. Check out Biz2Credit for:

  • Working capital loans to jumpstart your business growth.
  • Term loans for access to full cash amount upfront.
  • Commercial real estate loans if you’re looking to reinvest capital in your next business opportunity.

See for yourself how easy it is to partner with Biz2Credit and find out if you’re pre-qualified in seconds.