What is an LLC Loan?
An LLC loan is funding provided to a business in exchange for repayment and interest. A Limited Liability Company (LLC) is a business entity structure in which the managing members are not personally liable for obligations, debts, and/or liabilities incurred by the entity. LLC business loans can take different forms and are provided by banks, micro-lenders, and SBA. LLCs combined the characteristics of a corporation, partnership, and sole proprietorship. An LLC does not pay taxes-their profits and losses are passed through to members, who claim them on their tax returns.
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A Corporation Versus an LLC: What Are the Differences?
|Limited Liability Company
|Offers protection to members of LLC from personal liability for the LLC's Debts or liabilities
|LLC Members can be taxed as a partnership or corporation
|Only requires minimal annual requirements to maintain the entity
|Limited personal liability for shareholders
|A corporation is a separate taxable entity. Shareholders pay taxes on the profits of the corporation
|Required to hold regular meetings and minutes of such meetings
Business Loans for a Limited Liability Company
There are a ton of great loan options when it comes to small businesses or LLC establishments. Business owners looking to take advantage of loan options that don’t come from traditional avenues, like banks, can utilize alternative lending solutions like online lending to find their solution. Finding loans online is a great way for a limited liability company like yours to obtain the financing you need to grow. Now, you can certainly use personal loans as an alternative if your credit isn’t looking solid, but then you’ll be dealing with combining personal assets with company ones. If you want to separate personal assets or real estate from your business and leave yourself protected in the case of default, business loans are your best option.
Below are 8 best loan options and financing solutions for your limited liability company (LLC):
Long-Term LLC Business Loans
Long-term financing is available for businesses looking to expand and must spread those costs out over years with affordable payments.
- Long term financing from 2 to 10 years
- Monthly affordable payments
- Rates starting at 9%
- Great for large expansions
Business Line of Credit for an LLC
A business line of credit is a revolving credit line where you can draw funds upon a need, allowing a quick solution to cash flow, unexpected expenses, or taking advantage of an opportunity. It functions like a credit card, where the business can borrow, repay, and borrow again up to a predetermined credit limit. You only pay interest on the current balance.
- Revolving Line of Credit
- Draw Feature
- Rates starting at 1% per month simple interest
- Good credit required
Small Business Administration (SBA) Loans
Government-backed SBA loans are popular for LLCs seeking long-term financing at attractive rates and terms. Credit and document requirements are strict but worth it if you qualify.
- Application process requires good credit
- Great rates and terms
- Must support credit worthiness with significant documentation
- Monthly Payments
Short-Term LLC Business Loans
Short-term business loans, defined as terms from 3 months up to 24 months are easier to obtain because the credit standards and documentation requirements are less than that of traditional business loans. Small business owners favor this product to the fast and easy application process.
- Streamlined application process
- Same day approvals
- Auto ACH payments
- All Credit considered (must have a minimum of 550)
Equipment Financing for an LLC Business
Businesses that rely heavily on equipment turn to Equipment financing. The terms can come in the form of a lease or loan. Using the equipment as collateral allows finance companies to offer repayment ranges from 2 to 7 years, providing affordable payments to the LLC.
- Monthly payments
- Affordable terms
- Reasonable costs
- Streamlined application with minimal documentation required
Business Cash Advance
A business cash advance is an alternative to traditional financing used predominantly for working capital. Easier approval process and lower credit standards than traditional financing. Same-day business funding is available with a fast application process.
- Fast funding process
- Flexible payments, repayment attached to sales
- Estimated time to repay from 3 to 18 months
- Funding amount based on revenue
Merchant Cash Advance
A Merchant cash advance, a future sales agreement, advances funds to businesses based on current revenue streams. The repayment process is a set percentage of future sales until paid back in full, depending on future sales, offering flexibility in repayment.
- All credit considered down to 500
- Less requirements than traditional financing
- Quick funding, as little as 1 day
- Repayment based on a split of merchant processing
Invoice financing is a purchase of an invoice at a discount from an issuer who wishes to get paid prior to the terms of the invoice issued. This form of business funding is essential for an advance of the invoice issued. The invoice finance company assumes the collection of invoices once purchased from the initial issuer and is compensated once the invoice is collected. This is an affordable short-term funding option and does not lead to the accumulation of debt like a loan would.
- Access cash through selling your invoices
- Improves cash flow and accelerates accounts receivables
- Factor rates as low as 1% on net invoices of 15, 30 or 45 days
- Business owner credit not considered for approval
What are the most common Uses of a Business Loan for an LLC?
- Working Capital- Solving cash flow issues of a business by balancing out revenue vs. esxpenses.
- Purchasing Equipment- Purchasing necessary equipment for the business operations.
- Advertising- Acquiring and maintaining customers through advertising can cost significant money.
- Expansion- Business opportunities to expand the business.
- Emergency- Emergencies can happen for those last minute needs that require business funding.
- Any legitimate Business Purpose
How to get a business loan for an LLC?
The process of getting business funding can vary based on your qualifications and the business funding product you are applying for. The following are the most common steps in the application process.
- Choose a Business Loan Originator- You should first consider which type of originator you would like to apply with whether its a bank, credit union, business loan broker or online lender.
- Qualifications- You should consider your qualifications with a business finance specialist and determine what you credit is like as well as the health of your financial documentation for the business.
- Purpose- Identify the need for capital for your LLC as that can impact what products and terms you will be applying for.
- Products- Select business financing products that best serves your need and terms that you can qualify for by applying with multiple lenders.
- Application- Submit application and document required based on the initial products that were suggested by the business finance specialist.
- Offer(s)- Offers should come with clear disclosures explaining the products and terms so you can compare and contrast your choices. Compare offers from multiple lenders to determine which products and terms are best for your need.
- Select Offer- Select the best offer based on your need. Sign an agreement and provide the necessary closing conditions so you can get final approval and funding.
- Funding- Once your file is clear to fund, money is sent to your business bank account by wire or ACH.
of Lenders Work With an LLC?
- Traditional banks
- Marketplace Business Originators
- Online Business Lenders (Fintech)
- Long-Term Business Lenders
- Independent Sales Organizations (ISO’s)
- Equipment Financing Companies
- Invoice factoring Companies
- The Small Business Administration (some products require collateral)
- Private Lenders
- Hard Money Business Lenders
- Commercial Real Estate Lenders
Advantages and Disadvantages of Getting a Business Loan as a Limited Liability Company (LLC)
There are no advantages or disadvantages to being a Limited Liability Company when it comes to getting business financing.
AdvancePoint Capital is a Business Finance Marketplace that offers all available products regardless of your business formation. As with any business loan, it’s important to choose the best financing product for the job.
The Pro's & Con's of Getting a Business Loan for your LLC
- Financing can give your business a leg up on the ability to grow
- Provides stability with cash flow and cash reserves
- Builds Business Credit and improves business credit scores
- Funds necessary projects and purchases
- Business funding adds debt onto the business which reflects on the balance sheet
- Monthly expenses are increased with the debts payment(s)
- The cost of business funding can out way the benefit
- May prohibit future financing that is more important
- The business funding doesn't solve your problems
Alternatives to LLC loans
Sometimes small business loans are a bad idea. Consider alternatives if you feel the need to finance a business need.
- Personal Loans- Online lenders have personal loans that require less documentation and can provide a solution at affordable rates and terms.
- Credit Cards- Credit cards are a popular tool most business owners have to use for quick purchases and pay bills.
- Self Fund- Small businesses will use personal funds for a business purpose to save the cost and time it takes to get business funding
Always consider a cost benefit analysis when choosing business funding options.