Limited liability companies are the most popular choice for small businesses. The numerous benefits of forming an LLC are why it remains the favored option for small companies. The advantage of LLCs comes from the limited liability the business owners have in case of lawsuits, financial burden, and tax flexibility.
These LLC benefits also open up avenues for additional financing. Depending on your business’s needs, you may find certain types of loans for LLCs more favorable than others. Regardless it’s important to understand what an LLC loan is and how to get a business loan as an LLC company.
What To Consider Before an LLC Business Loan
An LLC Loan is a small business loan that focuses on funding the LLC, not the company’s owners, even though it’s technically a byproduct of the loan.
Before jumping the wagon to take out a business loan, it’s important to understand the purpose of that loan. LLC loans must serve a purpose to keep a business running or make a profit to pay off the loan.
As an LLC, you should consider how that loan will ensure minimal liability while also opening up avenues of cash flow that will make up for the burden of a loan. Taking out a loan to access emergency capital isn’t an idea anyone would recommend in the business world.
Banks and other loan providers want to ensure that they make money by providing loans. Having a plan to ensure that happens is vital to guaranteeing stable income and acquiring an LLC business loan in the first place.
Types of LLC Business Loans
Bank Loans are essential for established LLCs to attempt to acquire. LLC bank loans offer flexibility and low-interest rates. The only issue with a business loan from a bank is the strict requirements needed.
Banks will typically only give loans to businesses that have proven their financial competency. Having a good business and personal credit score will drastically increase your chances of acquiring a bank loan.
SBA loans are similar to bank loans in a few ways. They offer flexibility and access to cash but require a significantly lengthier application process.
LLC Business Lines of Credit
Business lines of credit are one of the easiest ways an LLC can gain access to more capital. A business line of credit isn’t necessarily a loan. It’s an extended pool of capital.
The idea behind a business line of credit is having continuous access to capital instead of receiving just a lump sum of cash. This method allows financial flexibility when necessary.
LLC Invoice Financing
Invoice financing is another easy way for an LLC to acquire capital via collateral. This option may be favorable for businesses that have unpaid invoices from consumers.
Invoice financing allows a business to receive a cash advance for unpaid invoices. These unpaid invoices act as the collateral, which means these loans as secured. Secured loans are easier to acquire because of this collateral factor.
The downside of invoice financing is the fees that may come with receiving these cash advancements. Some fees are predetermined, while others stack up depending on how long it takes the consumer to pay these invoices.
LLC Loan Requirements
Depending on your lender, you may need additional documentation and requirements to apply for an LLC loan. If this is the case, you should talk to the loan provider about the requirements to apply and get the loan.
The following are common requirements:
Financials: Loan providers need to understand the business’s financial position when discussing financial documents. These documents may involve the company’s balance sheet, cash flows, account statements, and tax returns.
Personal Financial History: Some banks and loan providers will usually ask or look for the LLC’s financial history representatives. If the representatives have a good credit history, they will feel more comfortable entrusting a business loan to your company.
Collateral: Banks or loan providers will ask you to put up business assets for collateral if your loan is secured. Assuming your loan is secured, you will need to put something of higher value than the loan. Typically, the loan you get will be worth 75% of the asset’s estimated value.
Business Documents: You will most likely need to provide relevant business documents that show the company’s competency. These documents may include your company’s business plan or intent with the loan, such as construction plans or a business plan involving the money.
Other documents may include legal agreements with other parties involved and operating agreements.
Read more on how to qualify for small business loans to better your chances of qualification.
Below are the answers to the most common questions about LLC small business loans.
How to get a loan with an LLC?
LLC small business loans are simple application and review processes with loan providers and banks. Having a good financial standing will make this process faster and more consistent.
What is an LLC business loan?
LLCs operate as separate entities from their owners. Since this is the case, the actual owners remain independent from any financial burdens the company may face. The only core difference between a standard business loan and an LLC business loan is what kind of business it’s funding.
Do you need an LLC to get a business loan?
Small business loans are usually completely applicable and available to LLCs, but you don’t have to be an LLC to receive a business loan.
Can an LLC get an SBA loan?
SBA loans are entirely available to LLCs and highly recommended when applicable as the requirements are less strict than a bank loan.
Can a new LLC get a business loan?
It’s perfectly viable for a new LLC to acquire a business loan, while it may have some challenges. Usually, banks need an LLC to have two years of operational experience before considering them for an LLC business loan.
An Outsourced CEO and expert witness, Jim Thomas is the founder and president of Fitness Management USA Inc., a management consulting, turnaround and brokerage firm specializing in the gym and sports industry. With more than 25 years of experience owning, operating and managing clubs of all sizes, Thomas lectures and delivers seminars, webinars and workshops across the globe on the practical skills required to successfully overcome obscurity, improve sales, build teamwork and market fitness programs and products. Visit his Web site at: www.fmconsulting.net or www.youtube.com/gymconsultant.