How to Get a Business Loan as an LLC

Thousand of entrepreneurs across the U.S. select an LLC to create and run a business. Like other entities, LLCs often need to borrow money from creditors or other business loans to grow or combat unforeseen circumstances.

Following this LLC loans guide maximizes your chances of getting any LLC small business loan. You can also see our best LLC loans providers reviewed and tested by our experts in 2022.

Before You Go!

Have you formed an LLC? If you are still in the process, follow our Free DIY Guide or compare the two best options in LLC services online.

Benefits of Setting Up an LLC for Your Business

Many entrepreneurs ask why I should have an LLC for my business rather than a sole proprietorship. The answer is that an LLC has several advantages over other business structures, including S corporation, sole proprietorship, C corporation, LLP, etc.:

  • LLC is a “separate legal entity” from the business owners. So if the business faces any lawsuit or liability, the owners’ personal assets are shielded. (Limited Liability Protection: not offered with unincorporated businesses such as sole proprietorship or general partnership).
  • In addition to the owner’s personal credit history and credit score, the LLC can also have credit histories and credit scores (not possible with unincorporated businesses).
  • LLC provides IRS tax advantages by offering several flexible tax options (this flexibility is not offered in any other business structure).
  • Unlike corporations, LLCs have fewer administrative and legal formalities.
  • Unlike unincorporated businesses, getting loans, finding suppliers, and obtaining customers’ trust, working with banks is more accessible with LLCs. 

Reasons Why You Need LLC Business Loan

While you apply for an LLC loan, lenders want to know how and where the loan money will be spent. So, you should be well prepared to answer, “why does your LLC need a business loan?” Moreover, you also have an estimated loan amount in your mind so that you can apply for an LLC loan accordingly.

There could be several reasons behind applying for a small business loan. Some of the common reasons include:

  • Your LLC plans to launch new products and services or jump into new marketplaces.
  • To meet customers’ demands, LLC wants to increase inventory.
  • For better terms and interest rates, LLCs usually pursue refinancing the existing debt. 
  • Your LLC wishes to invest in employees, business assets, or equipment.
  • LLC is looking to buy or rent an office or business space
  • LLC plans to increase business capital to maximize opportunities

Once you know the purpose of a loan, you’ll need to work out exactly how much to borrow carefully. This will involve deep research into your chosen area, projecting future demands and costs, analyzing your LLC’s financial situation, and speaking with experts.

LLC Loan Requirements

Different state agencies, banks, and creditors have customized requirements to lend money to LLCs or other small businesses. The specific requirements even vary from state to state. Please click your LLC’s home state to know the state-specific agencies and their requirement for LLC business loans. 

State Specific Guide for LLC Business Loans

If you want a general overview of LLC loan requirements, here are some standard requirements in all states. 

Requirement # 1

Create an LLC Before Applying for a Loan

Before borrowing money, you need to form an LLC. Since legal entities have more credibility than unincorporated businesses, getting a small business loan will be a lot earlier by creating an LLC.

LLC registration is an easy and quick process. You can use any company formation services such as ZenBusiness, IncFile, BetterLegal, etc. However, if you are interested in forming an LLC by yourself, follow or LLC formation guide in all 50 states

  1. Name your LLC (or reserve a name): Entrepreneurs are required to choose a unique business name for their LLC. If you see that the procedure may take time, you can also reserve the name. Most states allow reserving a name for 120 days. 
  2. Choose a Registered Agent: You, any other LLC member, or a friend can be your LLC’s registered agent. If you don’t find any suitable person to be the agent of correspondence, hiring a professional registered agent will be a good option.
  3. File the Certificate of Formation (articles of organization): These are legal documents needed to register an LLC with the state. You can also take professional help from any famous LLC company to accurately file your LLC formation documents.
  4. Create an Operating Agreement: Operating Agreement is not mandatory to create an LLC. However, to avoid any future mess, you must adopt one. Having LLC bylaws in place will guide how the business should be operated, the decision-making authority, and the roles and responsibilities of each member. An LLC operating agreement also outlines what should happen in case of disagreements among members, in the event of dying/leaving of LLC members or dissolving the LLC.
  5. Get an EIN: It is a unique 9-digit number similar to social security number. You must get an EIN to hire employees or opt for a specific tax structure such as an S or C corporation taxation. 
Requirement # 2

Prepare Necessary Documents for Your LLC Loan

Lack of supporting documents and evidence is the most common reason that causes small business loan rejection. Lenders and state agencies rely on extensive information and reports while deciding to pass your LLC application. 

The specific LLC loan requirements vary by lending agency and state. However, below are listed the most common small business loan requirements:

1. Financial Documents for an LLC Business Loan

Your business expenses, tax information, and profit loss record are decisive factors in getting your LLC loan approved. Generally, the following financial information is required by lenders to decide on lending you money: 

  • The profit/loss report states the source of LLC revenue, LLC’s expenses, and the profit.
  • A balance sheet listing your LLC’s assets and what your LLC owns with dates
  • Detailed insight into your future revenues sources, business expenses, and expected profits in multiple scenarios in the future 
  • A cash flow statement indicating how business revenue is moving through your LLC
  • Bank and credit card transactions of your LLC in the form of account statements
  • Tax returns for LLC and its members (depends on how LLC elected to be taxed, Form 1040 Schedule C if taxes are passed through its members, Form 8832 if LLC is taxed as C corp, etc.)
  •  If your LLC already has taken any loans, LLC’s debt schedule and repayment plan will also be required.

Important

Many of the above-mentioned financial documents can be obtained from your accountant and the bookkeeping software that you use for financial records.

2. Business Documents for an LLC Business Loan

As mentioned earlier, getting small business loans is relatively easy with registered businesses compared to unincorporated businesses. So. while applying for an LLC loan, you have to submit documentation verifying that your business is correctly registered with the state. Such business documents include:

  • A copy of your certificate of formation that has the basic information about your LLC, such as the LLC’s name, address, type of business, principal locations, state registration number, etc.
  • An LLC operating agreement that explains how various business aspects are being managed.
  • A copy of any legal contract or binding that your LLC has with other third parties.
  • A certificate of good standing that verifies that your business is run in a state-compliant manner and you are responsibly submitting LLC taxes and annual fees.
  • Your LLC business plan includes details related to business overview, financial plan, sales, and marketing plan, operations plan, projections, competitive market analysis, product and service overview, a management team summary, etc.
Requirement # 3

Miscellaneous Factors for Maximizing LLC Loan

Many entrepreneurs are seeking small businesses and start-up loans. So, you may have to compete with many other business owners for an LLC loan. The more prepared you are, the better the chances of getting an LLC business loan. 

The following factors can maximize your chances of getting an LLC loan:

  • A solid personal financial history and credit score. This translates into your responsible business management.
  • A business credit score. This reflects how reliable your business is in repaying debts. 
  • Business licenses and permits for your LLC, as this ensures lenders that your business is being legally operated. Your LLC is very unlikely to get any lawsuit or termination notice.
  • Your LLC’s Employer Identification Number (EIN) ensures the creditors or lenders that your LLC is fulfilling tax requirements.
  • Your business history and track record. This shows how your business has survived and grown. Older the business, the better the chances of getting an LLC loan.
Requirement # 4

LLC Collateral and Personal Guarantees for LLC Loans

Business or personal liens, collateral, and guarantees significantly impact your LLC’s ability to get a small business loan. LLC loans with collateral are secured, whereas LLC loans without collateral are unsecured. Let’s see How each of these terms means.

1. Collateral 

Asset or combination of assets that the lender can seize and sell in case your LLC fails to repay the loan. Your business or personal bank accounts, equipment, inventory, vehicles, or real estate are some of the common collaterals.

2. Personal Guarantee 

In a personal guarantee, you make an agreement with the lender stating that if your LLC defaults on the debt, you will be personally responsible for your LLC’s debts. In such a situation, your personal assets will be liable when LLC fails to repay loan money. So due to the personal guarantee, you put your personal assets at stake, and the limited liability protection of LLC cant protect your personal assets,  

3. Blanket Lien 

In the blanket lien, the lender can claim any or all the assets of your LLC in case of failure in LLC loan repayment. There is no need to define the collateral upfront in a blanket lien, and all of your LLC’s assets are liable to be sold up or seized to the total value of the LLC loan. 

How to Get New LLC Business Loans

As we explained earlier, your business age matters when applying for a small business loan or LLC startup loans. For better chances of getting LLC loans, your business should be at least 2 or 3 years old. Knowing this, many entrepreneurs wonder how to get new LLC business loans or how to get start-up business loans with no revenue. 

Here are the four most accessible ways to finance your new LLCs or start-ups with no money:

Option One

Small Business Loan

Well, the requirements for getting a start-up business loan are the same. However, your business plan and collateral play a vital role in such a situation. Many lenders usually provide small business loans to start-ups and businesses with no current revenue if you provide financial projections and a detailed business plan. In other words, you need to illustrate the LLC’s ability to repay its debt obligations timely.

Option Two

Business Credit Card

You can also consider business credit cards to get business loans with no revenue or start-ups. Your personal income and personal credit score play an essential role in such loan qualification. You need to repay your balance at the end of every month. In case of any unpaid balances, it will begin to accrue interest until fully repaid.

Option Three

Crowdfunding

Crowdfunding is a method of financing a project or venture by raising money from many people, typically through the internet. Crowdfunding has become a popular way to finance various projects, from start-up businesses and small businesses to charities and social causes.

Several different crowdfunding platforms are available, each with its own requirements and rules. In this method, you usually have to achieve a fundraising goal to receive any amount of money. 

Crowdfunding tiered rewards for contributors based on the size of their donations. Some of the rewards are early access to the product, merchandise, or special features.

Option Four

Equipment Financing 

It is a type of lending that allows businesses to finance the purchase of new or used equipment. The business equipment includes everything from small items like electronics to large manufacturing machinery. 

Equipment financing can be done through a loan, lease, or line of credit. Equipment financing can help businesses acquire the equipment they need to grow and expand their operations.

Conclusion

LLC business loans can be a great way to get the financing you need for your LLC business. By following these tips and having all LLC loan requirements in mind, you will be able to find the best loan for your small business. We hope that this information was helpful and you are now one step closer to getting the LLC funding you need for your business.

References

  1. https://www.sba.gov/funding-programs
  2. https://www.bankofamerica.com/smallbusiness/business-financing/
  3. https://www.usa.gov/funding-options

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