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NGExpert financial copywriter
Many limited liability companies (LLCs) use loans from the U.S. Small Business Administration (SBA) to fund their businesses.
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 April 15, 2024. Next review due October 1, 2025.
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.
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.
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.
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:
Lenders may have their own requirements, so it’s important to check with your chosen lender to determine what they’ll ask of you.
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.
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 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.
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.
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.
Determining which type of financing is best for your business requires that you ask yourself a few questions:
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
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.
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