6 Ways to Finance Your LLC in 2022 (LLC Loans)

Are you looking for finance options for your LLC and other small businesses? If yes, keep reading. This guide will discuss six ways through which you can get a loan for your LLC in 2022.

6 Ways to Finance Your Limited Liability Company

LLC loans are helpful to expand your business or boost the current situation. Many entrepreneurs do not have enough capital to execute a business plan the way they want it to be. In such situations, an LLC business loan helps them finance their LLC to achieve their goals.

There are a number of ways to finance your limited liability company (LLC). However, the best way for your company will depend on a number of factors, including the size of your business, your credit history, and the type of collateral you have available.

Type of LLC LoanInterest rateMinimum Credit ScoreMaximum FundingRepayment Term
LLC SBA Loans
3 -13%
650+
$5 million
6- 25 years
Bank Loans
3 – 7%
700+
$10 million
6 – 10 years
LLC Unsecured Loan
5 – 80%
500+
$6 million
6 months – 5 years
LLC Invoice Factoring
1-4%
500+
$5 million
1 – 12 weeks
LLC Lines of Credit
2 – 5%
600+
$1 million
3 – 18 months
LLC Merchant Cash Advance 
18 – 20%.
500+
$500,000
2-10 months

Below are the details of these six ways available:

Option One

LLC SBA Loans

The U.S. Small Business Administration (SBA) is a valuable resource for small business owners who are looking for financing. SBA loans can be used for a variety of purposes, including start-up costs, working capital, and expansions.

Small businesses including LLC loans are available in both short and long-term options, and they offer competitive rates and flexible repayment terms. Whether you’re just starting out or you’re ready to take your business to the next level, an SBA LLC loan can provide the funding you need. Below are given types of SBA loans suitable to finance your LLC:

Advantages and Disadvantages of SBA Loans for LLC and Other small Businesses

Pros
  • Long term repayment
  • Affordable financing
  • Lower interest rate
Cons
  • Require good credit score

SBA 7 (a) Loan Program

The SBA 7(a) loan program is one of the most popular options for financing an LLC. This program offers loans of up to $5 million, with repayment terms of up to 25 years.

SBA 7 (a) Loan Interest Rate and Qualification

To qualify for an SBA 7(a) loan, your LLC must be a for-profit business with fewer than 500 employees. You need to have credit scores of 650 or higher, a strong business history of at least two years, and reasonable invested equity.

Interest rates vary based on your business’s qualifications and the market Prime Rate. However, typically SBA 7 (a) loan interest ranges from 5% to 8%.

SBA 504 Loan

The SBA CDC/504 loan program could be a good option for LLCs that promote business growth and job creation. This program offers long-term, fixed-rate loans of up to $5 million, with repayment terms of up to 10-20 years.

SBA 504 Loan Interest Rate and Qualification

To qualify for an SBA 504 loan, your LLC must be a for-profit business and have a tangible net worth of less than $15 million. Moreover your LLC, after paying federal income taxes, must have an average net income of less than $5 million for the two years preceding your loan application.

Interest rates vary based on your business’s qualifications and the market Prime Rate. However, typically SBA 504 loan interest rate totals approximately 3 % of the debt.

SBA Microloans

If you’re looking for a smaller loan amount and faster funding, the SBA microloan program could be a good option for your LLC. You can re-open, rebuild, repair, improve, or enhance your small business with an SBA microloan. This program offers loans of up to $50,000, with repayment terms of up to six years. 

SBA Microloan Interest Rate and Qualification

To qualify for an SBA microloan, your LLC must be a for-profit business and fulfills the definition of a small business. You need to have good credit scores, a strong business history, some type of collateral, and the personal guarantee of the business owner.

Interest rates vary based on your business’s qualifications and the market Prime Rate. However, the maximum SBA microloan interest ranges from 8% and 13%.

Where to Get an SBA Loan for your LLC

Hundreds of banks verified lenders, and credit unions across the U.S. participate in the SBA loan program. Visit the official site of SBA and under the funding program tab, you will get all the information relating to lenders, different loan programs, and how you can get an SBA loan for your small business.

Option Two

Bank Loans

Whenever LLCs or other small business owners need financing, a bank loan is the first option that pops up in their minds. Low-interest rates and face-to-face communication make bank loans the most viable option for small businesses. 

However, banks have strict requirements and lots of paperwork in order to qualify for their loans. Bank loans can be used for a variety of purposes, including the purchase of the commercial real estate, the purchase of equipment, or working capital.

Advantages and Disadvantages of Bank Loans for LLC and Other Small Businesses

Pros
  • Affordable financing
  • Lower interest rate
Cons
  • Require high credit score
  • Extensive paperwork
  • Not good for LLC requiring fast financing

Bank Loans Interest Rate and Qualification

To qualify for a bank loan, your LLC must be established and have good credit scores of usually 700 or above. Moreover, you must have a strong business history, some type of collateral, and the personal guarantee of the business owner.

Interest rates vary based on your business’s qualifications and the bank where you applied. However, most banks charge interest ranging from 3% and 7%.

How to Get a Bank Loan for your LLC

Each bank has its own specified conditions to lend money to small businesses. Generally, if you have a good relationship with your local bank, you may be able to qualify for a business loan.  Alternatively, you need to have a unique pitch highlighting your strengths and conveying a clear vision for what your business aims to accomplish. 

Moreover, you need concrete evidence that demonstrates why you believe your company can succeed – things like completed projects, client testimonials, or competitive analysis can all help give the banks more confidence in your idea. 

And above all else, a high credit score, strong business history, and reasonable collateral are the key determinant of your bank loan success.

Option Three

LLC Unsecured Loan

If you don’t have valuable assets to secure a loan, or don’t want to put your personal assets at risk, you may still be able to qualify for an LLC unsecured loan. These loans are typically smaller in amount and have shorter repayment terms than secured loans.

An LLC unsecured loan is a type of business loan that is not backed by collateral. This means that the lender does not have any claim on the borrower’s assets if they default on the loan. LLCs, being registered entities, are often able to get better terms on unsecured loans than sole proprietorships or general partnerships. 

Since LLC unsecured loans are riskier on the lender’s part, so LLCs may have to pay higher interest rates. 

Unsecured loans can be used for a variety of purposes, such as working capital, equipment purchases, or real estate investments. When considering an unsecured loan, it is important to compare offers from multiple lenders to ensure that you are getting the best terms possible.

Advantages and Disadvantages of Unsecured Loans for LLC and Other small Businesses

Pros
  • Eligibility even with a low credit score usually 350
  • No need for collateral
  • No risk to personal assets
  • Faster approval
Cons
  • Higher interest rates anywhere between 5% to 80% or even higher
  • Short repayment duration, usually 6-12 months
  • Less flexible loan terms

LLC Unsecured Loans Interest Rate and Qualification

The qualification for LLC unsecured loans is very simple and you can get these loans even with no collateral and a small credit score of 350.

On the other hand, interest rates are very high. Based on the lender to which you apply for an LLC unsecured loan, the interest rate varies. However, most banks charge interest ranging from 5% and 80%.

How to Get a Bank Loan for your LLC

Many traditional banks and credit unions offer LLC unsecured loans. However, online lenders and alternative lenders often offer much more flexible lending requirements, since their entire business model relies on making loans that are accessible to as many people as possible. 

However, some may find the more stringent lending criteria employed by traditional banks more appealing, since they have typically proven themselves to be reliable and trustworthy financial institutions. 

Ultimately, it is up to you to decide which type of lender offers the best terms for your situation. But regardless of where you choose to apply for an unsecured business loan, it is crucial that you do your research and carefully consider all of your options before settling on a particular provider.

Option Four

LLC Invoice Factoring

If your LLC has outstanding invoices, you may be able to use them as collateral for a loan. This is known as invoice factoring. With this type of loan, you can receive funding based on the value of your invoices.

LLC invoice financing is ideal for you if your LLC is involved in B2B business or seasonal business. Usually, you get upfront loans up to 85% of the value of the unpaid invoices. When the invoices are paid, the lending agency deducts its fee and you receive the remaining amount of your invoice.

Advantages and Disadvantages of Invoice Financing for LLC and Other small Businesses

Pros
  • Easy approval
  • Fast cash
  • No collateral required
  • Improved cash flow
Cons
  • High fee (1-4% of the invoice value)
  • Loss of direct control
  • Not for every business
  • Customer Weak finance or bad credit can derail your financing

LLC Invoice Factoring Interest Rate and Qualification

The qualification for LLC invoice financing is very simple as the invoices themselves serve as collateral.

Based on the lender to which you apply for an LLC invoice factoring, the interest (called fee in this case) rate varies. However, most lenders charge a fee ranging from 1% to 4% of the total value of the invoice. This fee is charged each week till the customer pays.

How to Get Invoice Financing for your LLC

Several online platforms offer invoice financing with a fast funding time and a simple application process. Go check their terms and fee and decide accordingly.

Regardless of where you choose to apply for invoice factoring, it is crucial that you do your research and carefully consider all of your options before settling on a particular provider.

Option Five

LLC Business Lines of Credit

If your LLC needs access to cash on a regular basis, you may want to consider a business line of credit. Unlike traditional loans, business lines of credit give you access to a pool of funds and use funds when you need them.

For seasonal LLCs, business lines of credit are a suitable option to have working capital and emergency funds in hand. It can help with cash flow management, providing funds for unexpected expenses, or taking advantage of opportunities when they arise. 

And because you only pay interest on the portion of the line that you use, it can be more affordable than other options, such as loans.

With a business line of credit, you can get funding ranging from $10,000 to $ 1 million with a repayment term of 3 to 18 months. Just like with a personal credit card, you only pay interest on the portion of the line of credit that you use. Once you repay the amount your funds reset to the original amount in most cases. 

Advantages and Disadvantages of Business Lines of Credit for LLC and Other small Businesses

Pros
  • Use funds as needed
  • No collateral required
  • Lower credit score (300 to 600)
Cons
  • Penalties for late payment
  • Application may be time consuming
  • Lower loan limit

LLC Business Lines of Credit Interest Rate and Qualification

The qualification and application process for LLC business lines of credit is similar to standard bank loans.

Based on the bank or other lenders to which you apply for LLC business lines of credit, the interest rate varies and depends on the amount you used and the market prime rate. Generally, the interest rate ranges from 2% to 5% and APR can be as high as 80% or more.

Where to Get LLC Business Lines of Credit for your LLC

If you’re looking for a business line of credit, there are a few places you can turn. Your local bank is always a good option, but you might also want to try an online lending platform. There are a number of these platforms that cater to small businesses, and they can often offer more favorable terms than a traditional bank. 

Of course, you’ll need to shop around and compare offers to find the best deal. But with a little effort, you should be able to find a business line of credit that meets your needs.

Option Six

LLC Merchant Cash Advance 

A merchant cash advance (MCA) is a type of funding that allows businesses to borrow money against future sales. The funding is typically repaid through a portion of the business’s daily credit card sales. 

Merchant cash advances can be a quick and easy way to get funding, but they also come with some risks. The biggest risk is that the borrowed money must be repaid with fixed interest, regardless of whether or not the business is successful. 

This means that businesses must be very careful when taking out a merchant cash advance, as they could end up owing more money than they can afford to repay. For this reason, it’s important to understand all of the terms and conditions associated with a merchant cash advance before agreeing to one. 

With LLC online term loan, generally, you can get funding up to $500,000 with a repayment term of 2-12 months.

Advantages and Disadvantages of Merchant Cash Flow for LLC and Other small Businesses

Pros
  • Easy approval
  • Fast cash
  • Low credit score (500+)
Cons
  • Very high interest rate (starting from 18%)
  • Not suitable for LLCs with fluctuating income

LLC Merchant Cash Advance Interest Rate and Qualification

The main qualification for LLC merchant cash advances is sales volume and recent income. So even if you have a limited operating history or low personal credit scores, you can easily qualify. 

The interest rate for merchant cash advances ranges from 18% to 20%. Many merchant cash advance providers don’t charge interest like banks and other lenders. Their fees are based on a factor rate that ranges from 1.1 to 1.48. 

In case you can’t repay quickly enough, your LLC will face the real impact in the form of higher interest rates. Therefore, LLC merchant cash advances should be a last resort when it comes to LLC financing.

Where to Get Merchant Cash Advance for your LLC

Several online platforms offer merchant cash advances with a fast funding time and a simple application process. Go check their terms and fee and decide accordingly.

It’s important to understand the terms of the agreement before signing up. There are several factors to consider, such as the repayment schedule, fees, and interest rates. 

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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