When you start a business, you’ll be presented with several options for your business structure. The type you choose is important since it dictates how the company is taxed, what legal protections the company is afforded, and more. A limited liability company (LLC) is a common structure used by millions of American business owners since it shields members from personal liability. When it comes time to secure financing for the business, there are options available to LLCs that may not be available to sole proprietors or other business structures.
In this article, we’ll cover what an LLC business loan is, what it’s used for, and how to qualify.
Key Considerations
- An LLC business loan is a commercial financing option where the LLC, not an individual, is the borrower.
- LLC loans can be used for various business needs, such as equipment, inventory, and debt refinancing.
- Qualifying for an LLC loan typically requires a solid personal and business credit score, business income, and collateral.
What is an LLC Business Loan?
There are several business loans that can fall into the bucket of an LLC business loan. The key differentiator that makes a loan an LLC loan is that the applicant and borrower is an LLC, not an individual. Commercial financing in the form of a business loan can help an LLC maintain day-to-day operations with sufficient working capital, consolidate high-interest business debt, or invest in new business opportunities.
What Can You Use an LLC Loan for?
An LLC loan can be used for business purposes, though the specifics of what you can and cannot do may vary by lender. Typically, you’ll need to share your plans with the lender when you apply so they can confirm your intentions are aligned with any loan requirements.
Common use cases for an LLC loan include:
- Purchasing Equipment
- Buying inventory
- Expanding business operations through the acquisition of another company
- Boosting working capital to fund daily operations
- Consolidating business debt to secure a more affordable interest rate
How to Qualify for a Business Loan with an LLC
Business loans are available through banks, credit unions, and online lenders. While eligibility requirements vary by lender, typical requirements include:
- A solid personal credit score: Some lenders consider your personal credit score as an important part of the application, even if you have a business credit score too. What’s considered “good” will vary per lender, but the average business loan customer with BHG Financial has a FICO score of 755, which falls into the “very good” classification.
- A good business credit score: Especially if your LLC is new, you may not yet have a business credit score. However, if you do have one, lenders may use it as they determine your creditworthiness as a borrower. You can focus on building business credit before you apply to receive the most favorable loan terms.
- Business income: If you’re an established LLC, lenders may ask about your business income. For newer businesses, lenders may look to personal income as a measure of your ability to repay the loan.
- Collateral: You may be able to provide collateral like equipment, inventory, or real estate, to back a business loan. Otherwise, lenders will often file a lien on the business to support the loan via a Uniform Commercial Code (UCC) filing.
How to Apply for an LLC Loan
1. Outline a clear plan for the loan
The first step before you submit any paperwork to a lender is to clearly outline what you intend to use the money for and how much you need. Be sure you understand how much you’ll pay over the life of a loan, as well as the estimated monthly payment, so you can confirm your business has the cash flow necessary to handle repayment.
2. Confirm you meet eligibility requirements
Before you contact any lenders, ensure your financial house is in order. Gather your business origination documents that confirm your LLC status and check your personal and business credit scores. You may also need to pull together bank statements or tax documents that prove business income for the prior year.
3. Explore lenders and compare rates
There are pros and cons to working with different lenders, so it’s important that you explore multiple options to choose the one that works for you. Be sure to understand what type of support you’ll have access to, how long it will take to fund the loan, and what repayment terms are available. These factors may influence your borrowing decision when reviewed alongside interest rates.
Interest rates and fees are also critical factors when comparing loans. Some lenders charge origination fees or servicing fees that are administrative costs. Lenders may also enforce late payment or early repayment penalties, which are important to understand before you agree to the loan. If certain fees present concern, discuss them with your lender or seek out other lenders with a different fee structure.
4. Submit an application
Once you’ve found the right lender, apply for the loan online, over the phone, or in person. Some lenders can make a lending decision in minutes or the same day and fund a loan in as little as a few business days. However, if you’re pursuing certain types of loans, like one backed by the Small Business Administration (SBA), you may need to wait weeks to receive a decision.
5. Receive a decision and sign the contract
If you’re approved for a loan, the lender will notify you and share official paperwork to review and sign. Depending on the type of LLC you have, one member’s signature may be sufficient, or you may need all listed members to sign the loan agreement.
6. Receive funding
LLC loans are generally disbursed as a lump sum, meaning once you sign the paperwork, you’ll receive the total loan amount at once. You can then move forward in accordance with your plan and use the money from the LLC loan to fund your business operations.
Alternatives to an LLC Business Loan
If you need to secure money to further your business goals but decide a loan isn’t the right solution, there are alternatives to consider, including:
- Business line of credit: Unlike a business loan, a line of credit does not provide money in a lump sum but as a revolving credit, similar to a credit card. You’ll receive access to a certain line of credit that you can use for business expenses over time, and you’ll only be responsible for repaying what you borrow, plus interest.
- Business credit card: A business credit card can provide a short-term lifeline to finance a business. And it’s typically easy for an LLC to get a card, even if it’s newly established.
Explore Business Loans with BHG Financial
Whether your business is an LLC or you’re looking for a business loan for another company structure, the U.S.-based concierge support team at BHG Financial is ready to structure a solution for your unique needs. BHG Financial provides loans up to $500,0001,2 so that you can cover the expenses you need to run your business and grow. Plus, our longer repayment terms of up to 12 years1 give you affordable monthly payments.
Get started by viewing your personalized estimate using our payment estimator.
LLC Business Loan FAQs
Is it hard for an LLC to get a loan?
LLC members with good personal credit and established business income may not experience difficulty in getting a business loan. But if you’re operating a brand-new business with no income and don’t have a good personal or business credit score, it might be difficult to get a loan.
What happens if an LLC can’t pay back a loan?
If an LLC can’t make good on its debt obligations, creditors may go after the business assets to recoup what they’re owed. However, thanks to the protective business structure, the owner’s personal assets typically are not at risk.
