LLC loans

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on April 19, 2024. Next review due October 1, 2025.

    Since their origin in 1977, Limited Liability Companies – LLCs – have become the number one company structure choice for millions of new US businesses. Easy to set up and providing liability protection for their owners, LLCs can provide a compact and safer way for entrepreneurs to pursue their business dream. 

    Needless to say, where businesses lead, finance is never far behind. Business funding for LLCs has now mushroomed into a multi-trillion-dollar industry, providing limited liability organizations with loans from just a few $thousand up to the many $millions. Read on to find out more about this kind of financing and how it can help your LLC grow.

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      What is an LLC loan?

      An LLC loan is a business loan for limited liability companies. In reality, there is no difference between an LLC loan and other types of business loan. The term ‘LLC loan’ is applied to make it clear that these loans are aimed at businesses structured as LLCs.

      How does an LLC loan work?

      It depends on the kind of LLC loan you select. Some loans are simple lump sums that LLCs pay back over time, whereas others may be linked to the company’s daily or monthly revenues, their unpaid invoices, or are structured like a business credit card, with a revolving borrowing facility the LLC can draw against when extra funds are needed.

      What are LLC loans used for?

      You can use an LLC loan for almost any legitimate business purpose, including:

      • Working capital to pay day-to-day bills like rent and wages
      • Acquire a business
      • Buy inventory, machinery and other business equipment
      • Buy business property or refurbish an existing income-producing property
      • Buy vehicles
      • Cover taxes 
      • Advertising and marketing activities
      • Product development
      • Repay short-term or more expensive debt to restructure the LLC’s finances

      What types of LLC loans are there?

      There are many types of LLC loans. Common loan types include:

      SBA loans

      SBA loans can be obtained from banks, credit unions, nonprofits and online lenders who are part of the Small Business Administration (SBA) lender network. Partially backed by the US Government, SBA loans usually come with much lower interest rates and fees than other commercial lending. Although there are many types of SBA loan, SBA 7a, and SBA express may suit the needs of LLC owners best:

      SBA 7a loans

      This is the most common type of SBA loan, providing up to $5million to qualifying borrowers with repayment terms as long as 25 years. These loans are 85% backed by the US government, which reduces risk for lenders, but meeting the strict rules of eligibility could still be tough for some businesses. As well as an approval process that can take several months, organizations will typically need to have been in business for at least four years and have annual revenues over $180,000. Your personal credit score must be at least 680.

      SBA express loans

      SBA express loans are a faster alternative to the standard 7a loan program. Offered by the same pool of lenders, express loans can give LLCs up to $500,000 to support their business and you will usually get a ‘yes/no’ indication within 36 hours of making your application. SBA express loans are only 50% backed by the US Government, so lenders carry more risk. This means interest rates and fees are higher with express loans than their 7a counterparts.   

      Term loans

      The simplest and most common type of business loan. Typically used for one-off investments where you know exactly how much cash you need. Business property purchases, plant and equipment investment, and debt repayment and restructuring activities work well with this kind of loan. You receive a single, lump-sum cash injection and then pay it back in regular instalments over a fixed period of up to 25 years. Collateral may be required.

      Business lines of credit

      Functions like a high-value credit card but comes with lower interest rates and fees. LLCs can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing. Ideal for covering gaps in working capital, or sudden costs or opportunities, a line of credit can give you excellent peace of mind – you have access to funds when you need them, but you only pay interest on the sums that you withdraw. Interest rates are usually fixed, and your business may repay on a set or flexible schedule. Collateral may be required.

      Invoice financing

      Also known as account receivables financing, invoice financing allows LLCs to borrow against the value of their unpaid invoices. The lender may provide up to 95% of the invoice value within a few days or even hours of the bill being raised. Your invoices act as collateral, no added security is required.

      Equipment financing

      Equipment loans are an ideal way to buy expensive machinery and equipment. Spread the cost over time to take the strain off cashflow. Equipment loans use the assets you’re financing as security, similar to a car loan or a residential mortgage, meaning there is no need for added collateral. Use the equipment as you pay for it while the lender maintains a lien on the machinery. Once you pay the loan back, the lender releases the lien, and you own the equipment outright.

      Merchant cash advance

      Available for LLCs that accept customer payments by credit and debit card. You borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the cash advance back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan, no added collateral is required.

      Revenue-based financing

      Functions like a merchant cash advance but with higher borrowing limits. Based on the size and regularity of their total revenues, (not just their credit card sales), LLCs may receive a lump sum and pay it back over a short-term schedule, typically by small deductions from their daily sales. 

      Top tip: Merchant cash advances and revenue-based loans can usually be secured very quickly as qualification rules are less intensive and credit scores are not so critical.

      How do I qualify for an LLC loan?

      You can improve your chances of getting qualified for an LLC loan by preparing in advance. Key tasks to take care of include:

      Check your personal and business credit scores. 

      It is common for mistakes to occur on credit reports, but incorrect information could have an adverse impact on your loan application. Note that business credit scores are usually graded from 1 to 100 and are different than personal FICO scores. A good business credit score is 80+ and a good FICO score is 680+. Additionally, not all organizations will have a business credit score, in which case, the lender will scrutinize your personal credit report. Ensure it is correct. If there are errors, get them fixed before applying for your loan – and be aware that fixing a credit score can take time and there are no ‘fast credit repairs’ despite the many promises from online ‘credit doctors’ who say they can perform miracles for your score.

      How to build your business credit

      If you don’t have a strong business credit score, you can build one by following these simple steps:

      • Register your LLC with the state (if applicable)
      • Apply for an Employer Identification Number (EIN) from the IRS
      • Get a DUNS number from Dun & Bradstreet, a major business credit bureau, so that your business credit activities are recorded
      • Open business checking and savings accounts to keep your business finances separate from your personal account
      • Get a business credit card and manage it properly

      Understand business loan requirements

      To qualify for a business loan, LLCs will need to meet the eligibility criteria of the organization they are applying to. These rules will vary from one funding source to another, but the three critical factors are length of time in business, annual revenues, and your personal and/or business credit score. 

      Generally, the longer you’ve been in business, the higher your revenues are and the better your credit score, the better your chances of securing an LLC loan. However, even if you’re a start-up, have few revenues and a credit history that’s less than perfect, there may still be options to obtain the funding your organization needs. Simply contact Swoop to confidentially discuss your business borrowing needs with an LLC financing expert.

      Build a good business plan and pitch 

      Depending on how much you are asking for, lenders will expect a detailed and insightful business plan that explains why you need the funds and what they will do for your LLC once you have them. Business plans should do more than paint a rosy picture – explain the risks involved, what the downsides could be – and how you intend to overcome them. If you cannot produce a business plan yourself, it may be worth paying an external service to do this for you. 

      Offer collateral

      Lenders like to know they can get their money back if things go wrong. Often this means you must provide security for the loan – collateral – usually in the form of real estate or some other hard asset that the lender can sell to recover their funds if the worst should happen. If you don’t have sufficient collateral yourself, you could ask a cosigner who has real estate or other assets to join the deal. Most lenders will want collateral to the full value of the loan and will usually consider provided assets at less than general market rates – known as the ‘distress value’ – as they may need to sell the assets quickly to recover their funds.

      How do I get an LLC business loan?

      LLC loans can be obtained from almost any lender, but loans from banks and credit unions typically come with lower interest rates and stricter rules of approval, whereas loans from online and alternative lenders may cost you more but approval rules are easier. To improve your chances of success, follow these key steps:

      Step 1: Review LLC business loan requirements

      LLC loan applications can be affected by a number of different factors:

      • Credit score – typically you need 80+ for business credit and a minimum 550+ for personal FICO (600+ with many major banks and credit unions)
      • Length of time in business – start-ups and very young businesses will find it more difficult to secure a business loan
      • Business track history – this means having a strong financial record and a habit of paying your debts on time
      • The type of industry you operate in – some business sectors are riskier than others
      • Sufficient documentation – lenders will need to see accurate and up to date records
      • Use of funds – what you want the money for is important. Lenders will usually want to see the funds will be used to power growth

      Make sure your application meets the individual loan requirements of the lender you select. Don’t just assume all lenders are the same.

      Step 2: Determine the right financing option

      Some loans will work better for your LLC than others. Should you go for a term loan or a line of credit? Which loans are cheapest? Which are the fastest to secure? How much collateral will you need to provide? Research all the funding types you may qualify for before settling on your final option. 

      Step 3: Compare lenders

      Once you have your paperwork ready it makes sense to shop around for different LLC loan offers before settling on a lender. You can do this by approaching banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will introduce you to a choice of loan deals from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for LLC owners who have never taken out a business loan before. 

      Step 4: Gather documentation

      Every lender will have their own list of required documents, but most will need to see bank statements (at least 18 months), balance sheet, profit and loss statements, cashflow projections, list of debts, list of assets, customer database, articles of incorporation, business licenses, certificates of good standing, tax returns and more. 

      Step 5: Apply for your loan

      Make sure you are within the deadline stipulated by the lender before submitting your application and ensure you have provided all the necessary documents and information they require. Keep in mind that processing times can vary enormously, with some providers taking many weeks to arrive at a final decision and disburse their funds. 

      If you need funds in a hurry, you may be eligible for a fast LLC loan. Start that process here.

      Step 6: Review your loan agreement and receive funds

      When your loan approval comes through, make sure you read and understand the terms and conditions of the loan you are accepting. If there are any points you are unclear on, go back to the lender for further clarification. Once you sign and return the loan contract your funds should appear in your business bank account within the timeframe set by the lender – anywhere from same day to a couple of weeks.

      Do I need good credit for an LLC loan?

      No, but it helps. The better your credit is, the better your terms and conditions will be. You will pay lower interest rates and charges if you have good credit. However, even if you have bad credit or have been turned down elsewhere, it may still be possible to get the funding your LLC needs. Contact Swoop today to confidentially discuss your loan requirements with a bad credit expert.

      What are the alternatives to LLC loans?

      If your LLC doesn’t qualify for a business loan, there may be other ways to secure the funds you need:

      External investors

      There are networks of venture capitalists and angel investors readily available online. Bringing in external investment can give you the cash you need and may also deliver a unique and extra set of skills and contacts that can help your organization grow even faster. 

      Note that investors will usually want a piece of the action in exchange for their money. This will mean you giving up a share of your ownership and may loosen your overall control of the business. Some investors may also want higher dividends or royalty payments as well as their share of equity. Venture capitalists and angel investors are also notoriously picky about the businesses they choose to back. You could spend many months pursuing one lead after another before you find the right match. 

      Crowdfunding

      Available via various online platforms, crowdfunding can bring in large sums if your presentation hits the right spot. Although it may be tough to raise big money in small donations from hundreds of donors, you will pay no interest charges and you do not need to repay the money if you spend it where you said you would. An eye-catching idea and a powerful pitch is essential to succeed with this funding option.

      Get started with Swoop

      No matter if you’re seeking your first LLC loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality LLC loans from a choice of lenders. Give your organization the financial boost it deserves. Register with Swoop today.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

      To read our editorial policy, please click here.

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