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LLC Business Loans: How to Finance Your New Business

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Millions of small business owners choose to structure their companies as limited liability companies, or LLCs. Not only does the LLC offer some tax flexibility, it also provides some important protections that limit the legal liability of the LLC’s members.

If there is any serious downside to the LLC structure, it’s that raising funds can be a bit more challenging than it would be with a corporation. After all, corporations can issue stocks and attract venture capitalists, neither of which are viable options with an LLC. This raises an important question: Whether you’re starting an LLC in California, in Wyoming, or in North Carolina, what’s the best option for raising funds?

Key Takeaways:

  • Do you need some money to start your LLC? Don’t panic there are lots of ways to ensure your business gets off to the right start
  • There are multiple loan types and factors that impact your ability to obtain a loan
  • Different lenders will offer different rates, options, and flexibility. Don’t rush into a loan find the one that best suits your needs
woman checking her approval for an llc business loan

Applying for an LLC Business Loan

Whether you are a business owner or a solopreneur LLC, the simplest solution is to apply for a small business loan. Here, the LLC structure offers some advantages. Sole Proprietorships and Partnerships have a harder time getting loans because they are not actual legal entities; the lender would essentially be providing money directly to the business owner, which makes many lenders wary. The LLC actually does qualify as a distinct legal entity, making small business loans much more viable.

So what steps should LLC owners follow when applying for a loan? Consider a few guidelines.

1) Check your credit score

Some lenders will want to evaluate your business credit score, but be prepared to have your personal credit score examined, too. The lender may use this information to help determine how much money they feel comfortable lending you, and at what interest rate.

Credit scores range from 300 to 850, and lenders often seek scores that fall above 700. However, there are plenty of legitimate loans, including loans from the Small Business Administration, available with credit scores in the 600s.

2) Consider your loan options

There are a number of types of loans available to LLCs. Not only do they have their own pros and cons, but they all have their own credit score thresholds. It’s wise to know all the options before you start talking seriously with different lenders. 

Here are some of the most common LLC loan types:

Term Loans

Pros: These lump-sum loans are repayable over a predetermined period, and can be used for almost anything.

Cons: Borrowing costs can be higher, especially for new business startups. And, a personal guarantee is usually required.

Credit Score Requirement: May be as low as 580.

Business Lines of Credit

Pros: A business line of credit is a revolving line of credit that your LLC can tap into as needs arise. Typically, interest is only paid on the money you actually spend.

Cons: Compared with other types of loans, lines of credit usually have higher rates and fees.

Credit Score Requirement: May be as low as 580.

SBA Loans

Pros: Loans backed by the Small Business Administration have a high rate of approval. There tend to be lower interest rates and longer timelines for repayment.

Cons: Those with poor credit may not qualify. Also the application process can be lengthy and more complex than with other types of loans.

Credit score Requirement: 640 or higher.

3) Determine how much debt you can afford

Any time you apply for an LLC loan, you’ll be expected to furnish the lender with the amount you wish to borrow as well as the purpose you’ll be using it for.

Online business loan calculators allow you to input the loan amount, interest rate, and payment terms to figure out exactly how much you’ll need to pay off each month.

Ensuring a monthly figure that’s feasible within your current business budget is critical.

4) Compare different lenders

Once you have a good sense of how much money you can afford to borrow, your next step should be shopping around to find good lenders. Do your due diligence, looking into banks, credit unions, and online lenders. There are a number of data points you’ll want to compare to ensure a wise decision, including:

  • Lending criteria
  • Interest rates for LLC loans
  • Fees
  • Loan terms and types available

Take the time to actually crunch some numbers, too. You may find that the lender with the lowest interest rates (for example) isn’t actually the most affordable choice overall, perhaps due to sky-high origination fees.

5) Assemble your paperwork

There are a number of documents you’ll need to supply when you apply for your LLC loan, including:

  • Personal information, including contact information and income sources for every LLC member.
  • Your LLC’s name, address, and EIN.
  • Company financials, including two years of balance sheets (assuming you have them; obviously this isn’t possible if your business is a brand new startup).
  • Legal documents, including your articles of organization and your business license (if you have one).
  • A detailed business plan, which can shed light on how your funding will be used.

Of course different lenders will have different documentation requirements, but gathering these specific pieces of information can be a good place to start.

Seek Funding for Your LLC

The LLC structure can be an excellent choice for any new business. As you form your LLC, however, it’s important to be aware of both the opportunities and the limitations you have for funding. Consider your options for obtaining an LLC loan, in particular, as this may be the best way to raise the capital needed to get your new venture off the ground.

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Written by Amanda Clark

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Amanda E. Clark is a contributing writer to LLC University. She is a graduate of Eastern Michigan University and holds degrees in Journalism, Political Science, and English. She became a professional writer in 2008 and has led marketing and advertising initiatives for several Fortune 500 companies. She has appeared as a subject matter expert on panels about content and social media marketing. She regularly leads seminars and training sessions on trends and tactics in professional writing.

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