When it comes to business financing, limited liability companies (LLCs) are eligible for most options — almost all business lenders work with this business structure. You can use an LLC business loan to buy equipment, finance inventory, expand your operation and more.
Unlike sole proprietors or partnerships, LLCs typically have an easier time finding business loans through traditional lenders like banks and credit unions. But if your company is new or you’re a sole proprietor, you may have trouble qualifying for traditional financing. Banks typically require your company to be profitable and in business for at least two or three years. If your LLC doesn’t meet that criteria, an online or community lender may be a better choice.
An LLC business loan is the same as any other business loan. Some lenders may state that they offer LLC business loans for marketing purposes, but lenders don’t typically offer loans or products that work differently for LLCs. Having an LLC isn’t usually required for a small business loan, either.
Most small business loans have requirements around revenue, time in business and credit score minimums. So, if your LLC meets the lender’s requirements, you’ll have the same shot at a business loan as a non-LLC business.
However, even with an LLC, many small business loan providers require a personal guarantee. So, while your LLC may protect your personal assets, a small business loan personal guarantee may still leave you personally responsible for the loan if your business can’t repay it.
A little preparation can go a long way toward getting a business loan, and it starts with clearly defining your business needs.
Determine the purpose of your loan and how much you need to borrow. These factors can also help you decide which loan makes the most sense for your business goals.
For example, if you need to make a large equipment purchase, an equipment loan might be the best choice. Or, if you’re looking to cover cash flow needs or an ongoing project, you might decide a line of credit is a better move.
Before you apply, review your credit score to see if it’s up to snuff. Most business loan providers require a good to excellent personal credit score of at least 670. Recent bankruptcies may also hinder your ability to get a loan, as well as other serious hard marks on your credit history. Other majority owners also need to meet credit score requirements.
If you’re worried about a business credit score, many business loan providers don’t check it. However, you can review your business credit score with Dun & Bradstreet, Equifax Business or Experian Business.
Banks tend to offer the lowest rates but prefer to work with established businesses and clients with whom they have an existing relationship. Credit unions may also have low rates, but not many offer a variety of business loans. Online lenders tend to have the most flexible eligibility requirements and often accept lower credit scores, but may come with higher interest rates.
Be sure to compare multiple offers and consider prequalifying with a soft credit check for a more accurate comparison.
Business loan providers generally ask for documentation such as state-issued IDs, personal and business bank statements, tax returns, profit and loss statements and possibly a business plan. And if you’re getting a secured loan, it may also be wise to get collateral appraised so it’s all set when you apply for a loan.
Many business loan providers also require a personal guarantee, which means you and other majority owners of your LLC must provide documentation proving you have the assets to back the loan.
If you’re in a hurry to get financing for your LLC and want to skip a majority of the paperwork submission, you can look into no doc business loans for LLCs.
Timing can make a difference in your chances of approval. You may want to apply during your LLC’s most profitable period to increase your chances of meeting monthly revenue requirements.
Turnaround time for a business loan can be anywhere from a few days to several weeks, with SBA loans typically leaning toward weeks or months before funds arrive. Online lenders tend to have the fastest turnaround times, often because they feature no-doc business loansTypes of financing available to LLCs
As a small business owner, there are several different types of business loans and financing to consider that can offer your business quick cash-flow loans or longer-term financing, each with varying interest rates, fees and loan repayment terms.
A term loan involves borrowing funds in one lump-sum loan and repaying it over several years, usually in monthly installments. Banks, credit unions and online lenders are all likely to offer term loans.
Term length can range from two years for short-term loans to 25 years for long-term loans. Amounts also range widely. Online lenders typically offer loans up to $500,000, but banks can fund loans in the millions. Rates are fixed and largely depend on your revenue, debts and loan amount. They typically start at around 6% to 8%.
A business line of credit allows you to borrow as needed and repay what you’ve borrowed — similar to a credit card. Credit limits can range from $1,000 to $250,000 or more and typically come with variable interest rates.
Many lines of credit are revolving, so once you pay off what you’ve borrowed, your credit line replenishes. There are also nonrevolving lines of credit, meaning the balance doesn’t replenish once you’ve withdrawn your credit limit. Unsecured and secured credit lines exist as well, often with the option to back up the line of credit with business assets.
An LLC line of credit is a great option for covering cash flow in slow seasons, a safety net for the unexpected, covering repairs or paying for ongoing upgrades. However, they usually come with a variety of fees, such as maintenance fees, annual fees or draw fees.
The Small Business Association (SBA) generally doesn’t offer small business loans directly but backs them to make it easier for companies, including small LLCs, to qualify for low-cost financing. Your LLC must be for-profit, located in the US and meet the SBA’s small business size requirements to meet the most basic criteria. But lenders typically also prefer to work with profitable LLCs and owners with good credit.
The SBA 7(a) loan program is the most popular choice and may be well-suited for an LLC, since other programs, such as 504, are for equipment financing and real estate financing.
However, SBA loans aren’t known for speed — it may take weeks or months to complete the paperwork and finish the process. If you’re a small operation with limited resources, consider using a packaging service, which some lenders offer, to cut down on the application time.
Invoice factoring is a short-term financing option that offers an advance on unpaid invoices from other businesses or government contracts. This type of financing isn’t a loan, so there are no interest charges, but you’ll pay fees. Most companies charge a fee that’s a percentage of your total invoices.
You may also be required to sign a contract, often between six months and a year, and many factoring companies have minimum and maximum invoice value requirements to meet. This option also isn’t available to LLCs that serve consumers rather than other businesses.
Merchant cash advances (MCAs) offer easy-to-qualify for emergency financing to LLCs in retail and other consumer-facing industries. It’s an advance on your credit and debit card sales, and the amount you can get is based on your monthly credit card sales. Funding can be quick, collateral isn’t typically required and merchant cash advance companies generally don’t require a credit check.
Instead of paying interest, you’ll pay a factor fee or factor rate, usually starting around 1.1 to 1.15, which is simply multiplied by your loan amount. Merchant cash advances are considered one of the most expensive types of business financing and may be best suited for emergencies.
Vehicle and equipment financing can be used to purchase expensive equipment for your LLC, such as tractors, restaurant equipment and computers or to finance other big-ticket business items like commercial trucks. Similar to a mortgage or auto loan, the equipment loan is secured by the asset you’re buying.
Equipment financing is typically much easier to qualify for than other unsecured business loans simply because you’re backing the loan with the item you’re buying. Most equipment loans come with fixed rates, and the term is most often determined by the longevity of the equipment you’re financing.
Many equipment companies offer in-house financing, but you can also finance equipment through online lenders or other lending institutions.
Does your LLC get a lot of orders, but you’re often lacking in inventory to back it up? Consider inventory financing, which is specifically used to buy products with the intention to sell. This type of business financing may be best suited for growing businesses that don’t have the cash flow or funds to meet demand.
With inventory financing, the inventory is the collateral for the loan, making it a secured option — which can also make it easier to qualify for than unsecured loans or financing.
However, inventory financing typically can’t be used for perishable goods, so restaurants, groceries and other similar LLCs may want to consider other options.
If your business needs a small loan under $50,000 or so and you’re unsure of your ability to qualify with a traditional lender, then a microloan might be worth checking out.
As the name suggests, microloans are small-dollar business loans. They can be available through a Community Development Financial Institution (CDFI), peer-to-peer lending platforms or online lenders. Some online lenders, such as Kiva, also offer interest-free microloans that are crowdfunded. The SBA also has a microloan program, often used by startups or businesses in underserved communities.
Consider these lenders that offer business loans for LLCs, including loan types, how much you can borrow and the requirements needed to qualify.
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Small business loan requirements for LLCs vary depending on what you’re getting — such as equipment financing or a term loan — but you can expect these general requirements from most business loan providers:
If you have an existing relationship with a bank, such as an active business checking account or previous borrowing history, that bank might be a good first step. Most business loan providers prefer to lend to businesses and LLCs they’ve worked with before.
Most LLC business loans charge, on average, interest rates between 6% and 60%, with the lowest rates typically coming from traditional banks. Online lenders, by contrast, typically charge higher rates because of more lenient requirements to qualify, which, therefore, represent a greater risk to the lender.
Some loan types, such as merchant cash advances and other short-term loans, charge a factor rate between 1.1 and 1.5 rather than interest. For example, if you borrowed $50,000 with a factor rate of 1.2, you would owe a total of $60,000.
Invoice factoring or financing often charges flat fees between 1% and 5% of your invoices’ value. So, if you finance $100,000 in invoices, you might owe between $1,000 to $5,000 to the factoring company — usually within 30 to 90 days.
Many business lenders charge additional fees on top of their rates. Depending on which type of loan you go with, you may be on the hook for:
Business loans can jumpstart your LLC or keep things moving, but keep these benefits and drawbacks in mind.
If your LLC doesn’t meet the time-in-business requirements or other eligibility criteria, here are alternatives to consider:
Getting a business loan for your LLC isn’t much different than getting a loan as a non-LLC. However, if the whole point of registering your business as an LLC was to protect your personal assets, you may want to consider a business loan without a personal guarantee.
Read our detailed business loan guide for more information and comparisons.
As long as you meet the lender’s requirements to qualify and have a good credit score, getting an LLC business loan could be a fast and easy process. However, if you have poor credit or are a newer business, you may need to seek out alternative business loans.
No, but it can help. Some lenders don’t offer business loans to sole proprietorships or partnerships, so having the LLC designation may actually improve your chances of loan approval.
If you’re a new LLC, you won’t have a business credit score at all. Taking out a loan or line of credit — and making your payments on time — will help to build up your business score. You could also apply for a business credit card, which is usually easier to qualify for than a loan and will help establish your business score.
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