How to Get a Loan With Your LLC

Limited Liability Companies (LLCs) can secure financing for various business needs, from daily operational costs to expansion projects. Obtaining an LLC loan involves specific considerations that differ from personal loans, as an LLC is a distinct legal entity from its owners. Understanding business lending nuances for an LLC can streamline the process of securing capital. This guide provides information for LLC owners seeking a business loan.

Types of LLC Loans

LLCs can access various loan products. Term loans provide a fixed sum repaid with interest over a set schedule, often used for investments like equipment purchases or expansion. Repayment terms range from months to years.

A business line of credit offers flexibility, similar to a credit card. An LLC receives a maximum credit limit and draws funds as needed, paying interest only on the borrowed amount. This revolving access suits short-term cash flow management or unexpected expenses.

Government-backed Small Business Administration (SBA) loans offer favorable terms due to government guarantees. The SBA 7(a) program provides working capital and funds for equipment or expansion. SBA 504 loans are for purchasing long-term fixed assets like real estate or machinery. While SBA loans offer competitive rates and longer repayment periods, their application process can take several months.

Equipment financing allows an LLC to purchase assets, with the equipment serving as collateral. This loan type has regular payments over a set period and can feature lower interest rates than unsecured loans due to the asset’s security. Invoice factoring, or accounts receivable financing, provides immediate cash by allowing an LLC to sell outstanding invoices to a third party at a discount, improving cash flow.

Merchant cash advances offer an upfront lump sum repaid through a percentage of the LLC’s daily credit card sales. This financing is faster to obtain than traditional loans but often has higher costs. The suitability of each loan type depends on an LLC’s funding goals and financial situation.

What Lenders Look For

When an LLC applies for a loan, lenders assess creditworthiness and eligibility. Both the business credit score and the owner’s personal credit score are important. While the business score reflects company financial management, personal credit is considered for newer or smaller LLCs, providing insight into the owner’s financial responsibility. Lenders seek a personal credit score of at least 690 for competitive rates, though some alternative lenders approve scores as low as 600-650.

The time an LLC has been in business is another factor. Traditional banks and SBA lenders prefer businesses operating for at least two years, indicating stability. Online lenders are more flexible, sometimes offering financing to LLCs with as little as three to six months in operation.

Annual revenue and consistent cash flow are reviewed to ensure the LLC can cover debt obligations. Lenders establish minimum annual revenue thresholds, which vary by lender and loan type, with banks requiring higher minimums. Profitability, shown through net income, demonstrates the business’s financial health and ability to generate earnings.

Lenders also evaluate existing debt obligations using ratios like the debt-to-income ratio or the debt service coverage ratio (DSCR). The DSCR measures a business’s cash flow against its debt payments. Lenders prefer a ratio of at least 1.25, meaning the business generates 1.25 times its debt service. This ratio indicates the LLC’s capacity to manage current and new debts.

Collateral, such as pledging assets like equipment or real estate, can secure a loan and reduce lender risk. While secured loans may offer better terms, many lenders require a personal guarantee from LLC owners. A personal guarantee means the owner agrees to repay business debt using personal assets if the LLC defaults, overriding the limited liability protection of the LLC structure. A well-structured business plan outlining goals, market analysis, and financial projections demonstrates a clear repayment strategy to lenders.

Gathering Your Application Materials

Gathering documents is a key step before applying for an LLC loan. A detailed business plan is required, especially for newer LLCs or those seeking significant funding. This plan should include an executive summary, market analysis, operational details, management team profiles, and financial projections for two to three years. It shows lenders how the loan will be used and the repayment strategy.

Financial statements provide a snapshot of the LLC’s economic health. Lenders request Profit & Loss (Income) Statements, Balance Sheets, and Cash Flow Statements. These documents need to cover the last two to three years, plus year-to-date figures, to show consistent performance and trends. The income statement reveals profitability, while the balance sheet details assets and liabilities.

Business tax returns, such as IRS Form 1120 or Form 1065, are requested for the past two to three years. These verify financial information. Personal tax returns, like IRS Form 1040, may also be required, especially with a personal guarantee, to assess the owner’s financial standing.

Recent business bank statements, for the last six to twelve months, offer lenders insight into daily financial activity, cash flow patterns, and account balances. These statements verify income consistency and fund management. Legal documents confirming the LLC’s existence and structure are also needed, including Articles of Organization, the Operating Agreement, and the EIN confirmation letter. These establish the business’s legal legitimacy.

If the loan is secured by assets, documentation proving ownership and valuation of collateral, such as property deeds or equipment titles, must be provided. For working capital or invoice financing, lenders may request Accounts Receivable and Accounts Payable Aging Reports. These reports detail outstanding invoices and liabilities, helping lenders assess receivables and cash management. Collecting these materials in advance expedites the loan application process.

Applying for Your LLC Loan

The application process for an LLC loan begins after gathering documentation and financial information. The first step is choosing a lender, such as a traditional bank, credit union, or online lender. Each offers different loan products, eligibility, and funding speeds, so select one aligning with the LLC’s needs.

After selecting a lender, complete the application form online or in person. Submit the supporting documents, including financial statements, tax returns, and legal papers. Online lenders provide portals for digital uploads, facilitating a quicker review, while traditional banks may require physical submission or in-person meetings.

Following submission, the lender initiates the underwriting process. Loan underwriters review all provided documents to assess the LLC’s creditworthiness, financial stability, and repayment capacity. During this phase, the lender may request additional information or clarification. This review helps evaluate the risk of extending credit.

The underwriting process culminates in a lender decision: approval, denial, or a counter-offer. If approved, the LLC proceeds to the loan closing phase. This involves reviewing and signing the loan agreement, which outlines all terms and conditions, including interest rates, repayment schedules, and fees. Understand all clauses before signing.

After the loan agreement is signed, funds are disbursed. Funding timing varies; online lenders may disburse funds within days, while traditional banks or SBA loans could take weeks or months. Funds are usually direct deposited into the LLC’s business bank account.