If your business is configured as a limited liability company (LLC), an LLC loan will help you cover many of your financing needs. Whether you are trying to remove your new business from the ground, improve your cash flow with an established LLC, or integrate your business debt, a good LLC loan can be a useful tool.
Continue reading to learn more about how to get a business loan using an LLC and how to manage an LLC loan.
What is an LLC Business Loan?
Small Business LLC loans are business loans issued by a limited liability company.
An LLC is configured to protect the owner’s personal assets by legally separating the owner’s personal assets from business assets. This means that if a business is defaulted, declared bankruptcy or sued, it can only use the business’s assets to cover debt or settlements from creditors. Additionally, LLCs offer owners a tax advantage because they do not require separate tax returns for personal taxes like businesses (known as double taxation).
Unfortunately, lenders avoid this by requiring the business owner to sign a personal guarantee. With personal guarantees, the lender is entitled to come after personal assets if it fails to repay the business loan.
This is why it’s important to know how to manage your LLC loan and avoid entering default.
5 Ways to Manage Your LLC Loan
Once you find a way to get an LLC loan, you need to proactively manage your debt if you want to keep your payments and make the most of the return on investment from the money you borrowed. Here’s how to manage your LLC loan:
1. Understand the terms of loan
Specifically, read the entire loan agreement and make sure:
- Loan amount (amount borrowed)
- The loan period (how long do you need to pay it back?)
- Repayment schedule (how much you own the lender)
- Business loan collateral (what you put to secure a loan)
- Interest rates and whether they fluctuate (fixed vs. variable interest rate)
- Latest payment grace period (if any)
- Related fees, such as advance fees if you pay off your loan early
If you are unsure of what something in the loan document means, ask your lender for an explanation. The last thing you want is to set up an aggressive repayment plan for yourself to know that you are landing at a large fee by paying off your loan early, or discover that your interest rate fluctuates when you think it has been fixed.
2. I have a budget
Like any other debt, new LLC business loans and long-standing debts require regular repayments. A business budget can help you track your income and expenses. This makes it easier to manage your business loans.
To create a business budget, look at your revenue. You may be able to do this based on accounts receivable for the last few months, but you need to consider seasonal changes and slower periods. From there you need to determine which fixed and variable costs will be deducted from your income. This is also a way to generate cash flow statements. This is what we want to see if many lenders are applying for a loan.
If you can’t do math, working with business budget software and accountants can go a long way in making it easy to create and monitor your budget.
Business budgets can help you deal with deficits and cash flow issues early. If you’re struggling to balance your budget, you can reduce costs such as reducing staff, changing the services and products you offer, or moving to cheaper locations.
3. Pay on time
A missing LLC loan payment will cost you as the lender is likely to charge you a late payment fee. It could be a flat rate or percentage of your missed payments. Some loan terms may specify that both are optional, and the lender will charge you which is larger.
Beyond that, missing payments will affect your credit score. If you need to borrow money in the future, a lower credit score means you will pay more in the form of a higher interest rate.
There are several options to ensure you don’t miss your payment. First, if the lender offers it, establish Autopay. This allows the lender to automatically withdraw monthly payments from any of your business accounts, preventing inadvertently missed payments.
You can set up a calendar reminder repeatedly on Autopay with your LLC loan, especially if not, a few days before your payment date. If you are paying the loan manually, this gives you plenty of time to make the payment. Also, if you are using Autopay, you can check your account to make sure you have enough funds to cover what your lender draws.
4. Look at your credits
Depending on the type of loan and the lender, your payment will be reported to the main credit department. Some lenders may report to their individual credit department. Others may report to business credit departments like Dun & Bradstreet.
Check your credit score regularly to avoid surprises. If you notice any errors, dispute them. Doing so should improve your score.
5. Get help if necessary
If you think you may miss a payment, contact your lender before the payment date. The lender wants you to pay off your loan and can work with you if you are in a tight spot.
If your lender doesn’t help you, you can explore refinancing your business loans or using business integrated loans. These options may help you from tight locations, but they usually have a loan origination fee or a one-time fee to establish a loan.
You don’t want to miss out on your LLC loan payments, so start investigating options before that happens. If the loan defaults due to a long missed payment, you may tank your personal and business credit scores, meaning the seizure of your company or personal assets, depending on the terms of the loan.
Ultimately, make business loan payments a top budget priority, and make sure you implement them closely to track your revenues and be sure to cover all your business expenses.
Conclusion
There are business loan options from regular LLC bank loans to fixed rate bank loans to business lines, so there are options to help your business grow. However, you need to be ready to pay back what you borrow, or you can also compromise your personal finances as well as your company. By ensuring you have a stable revenue stream, understanding all terms and costs of the loan agreement, and keeping a close tab in your budget, you will be set on the right path to managing your LLC loan.
