How do you get a business loan with an LLC? Complete Guide

A limited liability company (LLC) is a popular business form for millions of small business owners. It provides tax benefits and protections that limit the LLC members’ legal liability. LLCs are very simple and inexpensive to establish.

How and where may you receive an LLC company loan? They are accessible from traditional banks, credit unions, and online lenders. Still, there are some measures you should take before applying to ensure it is the best option for you. It would help if you also did everything possible to ensure your approval.

Here’s everything you should know about LLC loans and how to receive one.

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Related: Pros and Cons of LLC Loans

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Can you get a business loan with an LLC?

Yes, you can obtain a business loan through an LLC. Business lenders make loans to various business types, including LLCs, single proprietorships, and corporations. Some loans may be advertised, especially as LLC business loans. However, LLCs are eligible for a wide range of typical business loans.

If you own an LLC, you should have no trouble obtaining a company loan. It would help if you met the conditions for a business loan, although lenders often lend to various business types. Common loan conditions include:

• Good personal and business credit scores.
• A qualifying business income history.
• Collateral.

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How to get a small business loan for an LLC?

When seeking small company loans for an LLC, you must follow the steps outlined by the lender. Each lender may have a different process, but these are the general processes for applying for an LLC loan.

Check your credit score.

Some lenders use company credit reports and scores to make lending choices. They are available from Dun & Bradstreet, Equifax, and Experian. However, small company lenders may also consider your personal credit history and credit score when determining whether you are a suitable fit for a business loan and the interest rate you would pay.

Personal credit ratings range between 300 and 850, with higher scores indicating more vital credit. Along with your credit record, your credit score can reveal how you’ve previously handled debt responsibilities. Traditional lenders favour borrowers with excellent or exceptional credit (usually a score of 670 or higher). However, more flexible lenders are available. For example, you can obtain an SBA loan with a score as low as 640.

Alternative small business lenders, such as Internet or peer-to-peer lenders, may deal with you if your credit score is low, but be prepared to pay high borrowing fees.

You can get a free copy of your credit reports from AnnualCreditReport.com. There are also a few free options to obtain your credit score, such as through a credit card provider or another lender participating in the FICO Open Access Program.

Choose the correct type of LLC loan.

There are various sorts of LLC loans to select from. Before applying, review the credit score standards and analyze the advantages and disadvantages of each choice to see which is ideal for your business.

Calculate how much debt you can afford.

When you apply for an LLC business loan, you must tell the lender how much you want to borrow and why you need the money. Use a business loan calculator to estimate the loan amount that will not cause cash flow problems for your firm.

You will enter the loan amount, payback period, and annual percentage rate (or interest and fees) to calculate the monthly payment and total interest you may expect to pay during the loan term.

For example, if you take out a three-year, $10,000 small business loan with an APR of 8%, you’ll pay $313.36 per month plus $1,281.09 in interest during the loan’s term.

Make careful to experiment with the amounts until you find a manageable monthly cost. That way, you’ll know what to expect while looking for an LLC loan. You can also use this calculator to research lenders and financial options.

Compare LLC lenders.

Once you’ve determined how much you can afford to borrow, the next step is to research lenders. Check out what banks, credit unions, and online lenders have to offer. Remember to consider lending criteria, business loan interest rates, fees, and loan periods when evaluating your options.

Most lenders have minimum standards for borrowers. Lenders typically require a set amount of time in business, annual income, and a minimum credit score. Consider which lender’s standards best meet your needs.

Repayment lengths range from five to 25 years. Longer repayment terms result in more interest, but smaller payments spread over time. Shorter repayment periods allow you to repay the loan more quickly, but the monthly payments will increase.

Consider approval and funding timelines if you require loan proceeds sooner rather than later.

Running the numbers to get the most excellent loan package is also critical. If a lender charges a high origination fee, there may be better options than the lowest interest rate. And if you want to pay off the loan early, a prepayment penalty hidden in the fine print could raise your borrowing costs significantly. 

Here are some standard small business loan fees to consider:

• Origination fee: When you open a loan, many lenders charge between 1% and 5% of the loan amount to cover administrative costs.
• SBA guarantee fee: If you have an SBA loan backed by an SBA-approved lender, the Small Business Administration (SBA) will impose a guarantee fee of up to 3.75 per cent of the loan amount it guarantees.
• Late payment fee: If one of your payments is late, the lender may levy a high fee.
• Early repayment fee: Also known as a prepayment penalty, specific lenders demand a fee if you repay your loan early.
• Servicing fee: There may be an ongoing fee to cover administrative expenses.

Gather the relevant LLC loan documentation.

Now that you’re ready to apply gather the necessary business loan documentation that the lender expects to see. Here’s an overview of what you’ll need:

• Personal information. Name, addresses, resume, income sources, and contact information for yourself and the company’s co-owners
• Company information. Company name and address, tax ID or EIN.
• Financial information for the company. Two years worth of balance sheets, profit and loss statements, cash flow estimates, income tax returns, and business bank account statements
• Legal documents. Articles of incorporation, business license, and proof of business insurance (if any).
• Business plan. A document outlining how you intend to use the cash and the financial impact it will bring to your company.

Some lenders may seek further documentation. If offered a secured loan, you must supply details on the collateral. To avoid processing delays, ask the lender what you’ll need beforehand.

Apply for an LLC loan.

Many lenders provide LLC loans. Online lenders allow you to apply and upload supporting documents to an online dashboard for review. You will receive a decision within minutes or one business day.

However, a traditional lender may take a few days to a few weeks to respond, particularly if you must apply for the loan in person. SBA loans often have significantly lengthier waiting periods.

Once approved, the lender will generate documentation for you to examine and sign. After the loan documents are finalized, you will receive the money. The funding timeline varies according to the loan type and lender you choose.

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Frequently Asked Questions (FAQs)

What happens if your LLC loan is denied?

If your application is denied, you may still have some options. Start by contacting the lender to find out why your application was refused and what you can do to enhance your chances of approval in the future.

You may have to consider different sorts of loans. Although the interest rate will be higher, you could be a solid candidate for a bad credit business loan. Consider alternative lenders. Online lenders and peer-to-peer lenders typically have less severe eligibility requirements. Consider using a crowdfunding platform, which entails obtaining small funds through donations or investments in your firm.

If all else fails, it’s a good idea to spend some time improving your credit score if it was one of the reasons you were denied financing.

Do you need an LLC to get a business loan?

Not necessarily. You may be eligible for a business loan if you work as a lone entrepreneur. However, your alternatives may be restricted to online and private lenders, as most traditional banks and credit unions loathe lending to sole owners.

Do you need help getting a business loan with an LLC?

If you have good credit and meet the lender’s qualifying requirements, obtaining a company loan through an LLC can be simple. However, young enterprises and those with minimal revenue may need help receiving approval, mainly from traditional banks and credit unions. You may have to seek financing from a different lender, which may charge higher interest rates and have stricter repayment terms.

How does an LLC business loan work?

It depends on which sort of LLC loan you choose. Some LLC business loans are instalment loans that are granted in one single sum and paid back over time. Others are revolving lines of credit, which operate similarly to credit cards and can be used as needed.

Is it easier to get business credit with an LLC?

Yes, it may be easier to obtain an LLC loan. Some lenders will only lend to some owners. According to a recent study published in the Journal of Marketing Research, establishing your firm as a legal organization can make it easier to obtain finance and may even reduce gender bias.