Can I Get a Loan With My LLC? What Is Required

LLCs, like other businesses, often need financing. While LLCs offer personal liability protection, business loans involve specific considerations different from personal lending. Lenders evaluate an LLC’s financial health and operational history to assess risk and determine eligibility.

Understanding Loan Options for LLCs

LLCs have access to various loan products. Traditional bank loans, such as term loans and lines of credit, are common options. Term loans provide a lump sum repaid over a fixed period with interest, suitable for long-term investments like expansion or equipment. Business lines of credit offer flexibility, functioning like a credit card where funds can be drawn, repaid, and reused up to a set limit, often used for working capital or unexpected expenses.

Small Business Administration (SBA) loans are a significant category, backed by the U.S. government, often offering favorable terms. The SBA 7(a) loan program is versatile, supporting working capital, equipment, and expansion, with maximum amounts up to $5 million. The SBA 504 loan program focuses on long-term fixed assets, such as commercial real estate or heavy machinery, with loans potentially reaching $5.5 million. The SBA also offers Microloans up to $50,000 for small, early-stage businesses.

Beyond traditional banks and SBA programs, businesses can explore equipment financing, which uses the equipment as collateral for purchasing machinery or vehicles. Commercial real estate loans assist LLCs in acquiring or developing property. Online lenders also offer various loan types, including term loans and lines of credit, often with faster application and funding, though they may have higher interest rates than traditional lenders.

Key Requirements for LLC Loan Eligibility

Lenders assess several factors when an LLC applies for a loan, focusing on business stability and, for smaller or newer entities, the owner’s financial standing. Time in operation is a significant factor, with many traditional banks and SBA lenders preferring LLCs in business for at least two years. Online lenders may be more flexible, considering businesses operating for as little as six months.

Annual revenue is an important metric, as lenders use it to ensure the LLC generates sufficient cash flow to cover loan repayments. While specific revenue requirements vary, some lenders may require minimum annual revenues ranging from $100,000 to $250,000 or more. A well-structured business plan is valuable, especially for newer LLCs, demonstrating clear goals, strategies, and financial projections.

A business credit score provides insight into the company’s financial reliability. This score, distinct from personal credit, is generated by agencies like Dun & Bradstreet, Experian, and Equifax, reflecting payment history, credit utilization, and public records such as liens or bankruptcies. A strong business credit score (typically 80 or higher on a 100-point scale) signals a lower risk of default. For many small LLCs, the owner’s personal credit score plays a significant role. Lenders often look for a personal FICO score of at least 690 for competitive rates, though some alternative lenders may approve scores in the 600 range.

Lenders require specific documentation to evaluate an LLC’s financial health.
Business bank statements (past 6 to 12 months) to show cash flow.
Profit and loss statements (income statements) to summarize revenues, costs, and expenses, showing profitability.
Balance sheets to provide a snapshot of assets, liabilities, and equity.
Cash flow statements to detail cash movement and liquidity.
Business tax returns (past three years) to verify financial information and tax liabilities.
Personal tax returns (past three years) for the owner, especially for smaller LLCs, to evaluate overall financial capacity.

Navigating the LLC Loan Application

Once an LLC has gathered necessary information and documents, the application process involves several steps to secure financing. The initial stage involves identifying suitable lenders, from traditional banks and credit unions to online lending platforms. Banks and credit unions often provide more competitive rates but may have more stringent qualification requirements and longer processing times. Online lenders typically offer faster funding and more flexible eligibility criteria, though often with higher borrowing costs.

After selecting lenders, the LLC can initiate the application through online portals or in-person meetings. This step involves submitting prepared documentation, including financial statements, tax returns, and business information. Lenders then begin the underwriting process to assess credit risk. Underwriters examine submitted documents and credit reports to determine the business’s capacity to repay the loan and its creditworthiness. They evaluate factors such as income consistency, existing debt obligations, and proposed collateral quality.

During underwriting, lenders may request additional information or clarification on submitted documents. This follow-up process is standard and helps them understand the LLC’s financial standing. The timeline for approval varies significantly, from a few days with online lenders to several weeks or months for traditional bank loans or SBA programs, depending on loan type and application complexity. If approved, the lender will present the loan terms, including the amount, interest rate, repayment schedule, and any associated fees.

The Role of Personal Guarantees in LLC Lending

A personal guarantee is a frequent requirement in lending to LLCs, especially for small and medium-sized businesses. It is a legally binding commitment where an individual, typically the business owner, promises to repay a business loan if the LLC cannot meet its obligations. This agreement means if the business defaults on the loan, the owner becomes personally responsible for the outstanding debt.

Lenders often require personal guarantees because, while an LLC provides limited liability protection, this shields the owner’s personal assets from business debts. For newer businesses or those with limited operating history and assets, a personal guarantee provides additional security for the lender, mitigating risk. It allows lenders to access the owner’s personal assets, such as savings, real estate, or other valuables, to recover the debt in case of default.

Signing a personal guarantee can override the liability protection offered by an LLC. Even if the business operates as a separate legal entity, the guarantee makes the owner a co-signer on the loan, putting their personal finances at risk. Personal guarantees can be limited (covering a specific portion of debt) or unlimited (holding the guarantor responsible for the entire loan, including principal, interest, and fees). Many SBA loans, for instance, require an unlimited personal guarantee.