SBA loans for LLCs

Many limited liability companies (LLCs) use loans from the U.S. Small Business Administration (SBA) to fund their businesses.

Read this article to me

SBA loans are highly competitive but offer excellent rates and terms for small businesses that need funding. Read on to find out more about SBA loans for LLCs, including eligibility requirements and alternatives.

Page written by Kat Cox. Last reviewed on August 12, 2024. Next review due October 1, 2025.

What SBA loans are available for an LLC?

Because so many LLCs are small businesses, most SBA loan programs are open to them. This includes:

A small business can get anywhere from $500 to $5.5 million with these loans, depending on what they plan to use the loan for and if they meet the requirements. 

The most popular SBA loan for LLCs is the SBA 7(a) loan program, for a number of reasons. The SBA program lends the most money to U.S. businesses through the SBA 7(a) program compared to its other programs.  

SBA 7(a) loan

The SBA 7(a) loan program is meant for small businesses that have had difficulty getting funding from other sources. They’re backed by the U.S. federal government through the SBA, but are administered by approved lenders throughout the country. SBA 7(a) loans tend to have excellent rates and payback terms, which makes them extremely popular – and competitive. 

SBA 7(a) loans can be used for commercial real estate, working capital, equipment or inventory, among other uses. Borrowers who qualify can get up to $5 million in funding if they can prove their creditworthiness and business purpose. 

To apply for an SBA 7(a) loan, you first need to identify an approved lender in your area. They can usually walk you through the application process, including gathering necessary documents like identification, financial history, business documents and more. Also, they may take slightly longer to fund than other types of loans or financing, so they aren’t a great choice if you need financing in an emergency. 

Typical rates

Typically an SBA 7(a) loan has a fixed interest rate of 9.75 – 12.75%, depending on how much you borrow and for which purpose. The repayment terms are anywhere from seven years to 25 years. Longer repayment terms are reserved for commercial real estate loans. 

Every SBA-approved lender is allowed to set their own rates and terms for loans, although the SBA has set maximums that they can’t surpass. The rates and terms will also depend on the borrower’s qualifications – more creditworthy LLCs, such as those with higher credit scores and annual revenue, will usually get longer repayment terms and lower interest rates. It’s important to check with your chosen lender to determine what your specific repayment rate will be. 

Eligibility criteria

The SBA requires that any small business that wishes to take out an SBA loan be a for-profit business doing business in the U.S. They also require that the business meet creditworthiness requirements. This usually includes a minimum credit score above 600, two years in business and a certain annual revenue. 

The business must also be able to prove that they’ve exhausted any other financing options. This often includes applying for grants or other loans, or even personal financing. 

In order to qualify for an SBA 7(a) loan, you must meet the basic SBA eligibility requirements listed above. In addition, your LLC  will need to:

  • Operate in an approved industry (e.g. not gambling, cannabis or speculative real estate)
  • Demonstrate a business need for the financing
  • Not have any outstanding delinquent debts to the U.S. government (e.g. taxes)

Lenders may have their own requirements, so it’s important to check with your chosen lender to determine what they’ll ask of you.

What other loan types are available?

Because SBA loans are competitive, it can be somewhat difficult to borrow one. This is especially true for businesses who don’t have a proven credit track record or annual revenue, including startups and new businesses. But there are other loans and financing available for small businesses who can’t qualify for SBA loans. 

Term loan

A traditional term loan from a financial institution like a bank or credit union is an extremely popular way to finance an LLC. While term loans may have higher credit score requirements and have similar time in business requirements to SBA loans, they tend to have great repayment terms and interest rates. In addition, if you have an existing relationship with a bank or credit union, they may be happy to help you find the right loan for your business. 

Online term loan

Online term loans are easier to get than traditional term loans, but they tend to be more expensive, meaning they’ll have higher interest rates and shorter repayment terms. While many are backed by traditional financial institutions, online term loans are often backed by financial institutions that are more willing to lend to “riskier” businesses, meaning those with lower credit scores and less time in business. 

Online term loans tend to have shorter approval processes and fund more quickly than other more traditional loans, but again, higher rates and shorter repayment terms are the cost you pay for that advantage. It’s important to do your research and make sure you can make the payments on any loan, but especially an online loan or alternative loan with higher interest rates. There are many loan calculators available that can help you calculate your monthly payment before you sign as a borrower. 

Line of credit

If you can’t qualify for a loan for any reason, you may be able to qualify for a business line of credit for your LLC. A business line of credit is much like a business credit card, in that you’re given a credit limit and can borrow money up to that limit, only paying interest on what you spend. It’s not a lump sum like a loan. Additionally you can usually spend up to that credit limit again as you pay down the debt. Unlike a credit card, you can often withdraw cash from a line of credit or use it to pay for business expenses like mortgages or rent. 

Like a business credit card, a business line of credit may have high interest rates or annual percentage rates (APR), so it’s important to make sure you can afford the debt before you take it on. Many LLCs use business lines of credit for emergencies, such as slower periods or equipment failures. You can often get a business line of credit from your bank or credit card company where you already have an account. 

Equipment financing

If you run a business that uses a large amount of equipment, equipment financing can be a good idea. With equipment financing, you get a lump sum of money to buy equipment, such as manufacturing tools, vehicles or even furniture and fixtures, and agree to pay it back over time. In an equipment loan, the equipment you purchase serves as the collateral. 

Which is right for your business?

Determining which type of financing is best for your business requires that you ask yourself a few questions:

  • What do I need the money for? Many types of financing and loans have requirements about how you can use the money. Equipment financing, for instance, can only be used for equipment. 
  • How much money do I need? If you need a few thousand dollars to cover inventory or other expenses, a term loan may not be worth it – you might consider crowdfunding or microloans. But if you need a large amount of money to buy expensive assets like equipment or real estate, a term loan may make more sense. 
  • How quickly do I need the money? Traditional term loans and SBA loans tend to have longer application and approval processes than lines of credit or online loans. If you need money for an emergency, such as to cover payroll during a slow period or to buy equipment that has failed, this will influence what type of financing you apply for. 
  • How much can I afford to borrow? It’s important to consider interest rates and repayment terms and really look at how much money you expect to make from your LLC. If you can’t make monthly minimum payments, you may do a lot more harm to your business than the good the financing can provide.
  • What are my qualifications? It’s a good idea to start by knowing your credit scores, annual revenue and other financial information. Any lender is going to base their decision on lending to you on these factors, and you don’t want to be surprised. It’s a better use of your time to apply for loans you’re more likely to be approved for.

Get started with Swoop

Use Swoop to cut through the noise and find the financing that’s right for you. Sign up online, answer a few questions and within minutes you can see loans and financing options that may be right for your business. 

Written by

Kat Cox

As a B2B finance content specialist, Kat Cox's goal is to distill complicated financial issues into useful information for small business owners, to save them time they could be using to build their companies. Her work has been featured in Forbes and on financial health platform Nav.com. When she's not writing blogs, web copy, or fiction, Kat can be found walking her dog or singing karaoke in Austin, Texas.

Swoop promise

At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.

Find out more about Swoop’s editorial principles by reading our editorial policy.

Testimonials

Clever finance tips and the latest news

Delivered to your inbox monthly

Join the 95,000+ businesses just like yours getting the Swoop newsletter.

Free. No spam. Opt out whenever you like.

Looks like you're in . Go to our site to find relevant products for your country. Go to Swoop