If you run a limited liability company (LLC) and are looking for funding opportunities, an LLC loan could be the right choice. What is a loan for an LLC business? This is a type of small business loan that helps you cover your daily expenses. You can also use your funds to improve cash flow, invest in opportunities, and hire staff. All you need to know about LLC loans is to decide whether they are suitable for your business or not.
What is an LLC loan?
An LLC loan is a business loan that funds small and medium-sized businesses organized as a limited liability company. An LLC loan is not a specific type of loan offered through a lender. Instead, they are business loans found in traditional banks, credit unions, and online lenders. The US Small Business Administration (SBA) may also support some LLC business loans.
How do LLC loans work?
The best LLC loans will help you cover the most pressing business-related expenses. Depending on the type of LLC loan you choose, the funds will be paid in bulk or in the business line.
Some types of LLC loans are protected. This means you need to provide some type of assets that will help protect your loan. Business collateral allows lenders to ease the loan with a more favorable term, as they do not reduce the risk of lending your money, and if the loan fails, you can seize the company’s assets. There are no collateral requirements for unsecured loans.
One of the main drawbacks of an LLC loan is that many lenders also require personal guarantees. This usually overrides the liability protection that you normally get when establishing a business as an LLC. Signing a personal guarantee will personally be responsible for repaying the loan if the business fails. In the case of default, lenders can come after your personal property and assets.
What are LLC loans used for?
LLC Small Business Loans are often used to promote business startups, growth, expansion efforts, and even consolidation of business debt. Most lenders require applicants to disclose how they use the funds. What are the most commonly used LLC business loans? Here are some of the most common ways business owners can leverage loan funds:
It is important to note that some lenders will limit how they use their LLC loan funds. You also cannot use business loan revenue for personal expenses.
How much does an LLC cost?
LLC costs vary. States charge a fee to submit an LLC organizational article. Most states continue to file fees between $50 and $200, while LLC filing fees are only $35 in Montana. However, in Massachusetts, the LLC application fee is $500. There may also be ongoing fees such as annual renewal fees and annual reports.
Types of LLC Loans
The type of LLC loan that best suits your company will depend on your company’s financial position, your creditworthiness, and the duration of your business. Also, if you need quick access to your loan revenue, consider the financing timeline for each loan.
There are seven common types of LLC loans to choose from.
- Bank loan
- Period loan
- Credit business line
- SBA Loan
- Equipment Loan
- Invoice factoring
- Merchant Cash Advanced
How to qualify for an LLC loan
Before applying for an LLC loan, follow these steps to improve your chances of being approved.
Build business credits
Lenders can view individual and business credit scores when you apply for funds. Building appropriate credits before submitting your application will help you increase your approval odds. To do this, you can pay your bills on time and repay the balance in your revolving credit account. If you need to raise funds quickly, you can get a bad business loan, but it also comes with sudden borrowing costs.
You may also need to build business credits. Here’s how:
- Register your business with the state (if applicable).
- Apply for a free Employer Identification Number (EIN) on the IRS website.
- Get your Duns number from Dun & Bradstreet, the leading business credit bureau, and begin building your business’s creditworthiness.
- Open business checks and savings accounts to separate individual and company finances.
- Get a business credit card or line of credit and manage it responsibly.
Understand the requirements for an LLC loan
Eligibility guidelines vary from lender to lender. Typically, here are what you need to qualify for a business loan:
- Annual revenue: Most lenders have minimum annual revenue requirements, typically between $50,000 and $250,000 or more, depending on the lender and the type of loan. While banks are more likely to require a minimum income, online lenders may need just $36,000 in revenue to get started.
- Business Time: Also, many lenders need a certain amount of time in their business to qualify for fundraising. It is generally six months to two years, but it is a new LLC business and offers startup business loans if you need funds.
- Credit score: A good or excellent credit score (FICO score of 670 or higher for personal credit) improves your chances of qualifying for a loan in a competitive term.
- industry: The industry the company operates is stable and needs to offer growth potential. (Some lenders have a list of prohibited industries, including gambling and cannabis).
- document: Prepare to provide personal and financial documents when applying for a business loan. This includes financial disclosures and applicable business licenses.
Traditional banks and credit unions generally tend to have stricter requirements and slower funding times than online lenders, but have lower fees and higher loan amounts. The flexibility of online lenders can be sacrificeed in the form of higher interest rates and fees.
Develop a business plan
The lender wants to ensure that your company is likely to succeed and that you can manage your LLC loan repayments well. They also want to be clear about how you generate revenue and how you plan to spend your money to grow your operations.
You can move your best foot forward by devising a solid business plan that breaks down financial forecasts by dividing these issues. A business plan typically includes:
- executive summary
- Company description
- Market research into the types of products or services your company offers
- Detailed description of the product or service
- Overall Marketing Strategy
- Why you are asking for funds from an LLC and how you use your money
Traditional banks and credit unions typically require a business plan as part of the LLC business loan application process. Online and other lenders may not, but it may help improve your chances of getting a full loan amount approved.
Provide collateral
Some LLC loans come with collateral requirements. Collateral reduces the amount of risk to the lender because it can be seized if the lender defaults your loan to recover the investment. If your credit score is low, you are likely to need to create collateral to get funding approval.
Common types of business collateral include business equipment, real estate, investments and cash.
Conclusion
Small business loans targeted at LLCs are perfect for your business. Before applying for an LLC loan, compare the types of loans, assess profits and shortcomings, run the numbers and calculate the amount of AL loans you can afford.
You will also research some lenders and get a loan estimate to find the best deal to raise funds. Most importantly, meet lender guidelines. This will help you increase your approval odds so you can secure the funds you need.
