Pros and Cons of LLC Loans
A limited liability company (LLC) is a type of business structure which offers protections to small business owners. When forming an LLC, you protect your personal assets from liability for business debts.
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- Certified pre-approval Process
- Online Application Available 24/7
- Find a Quote Easily
- 100% Online Refinance
An LLC loan can be a good option if you need funds for your LLC. In spite of advantages to secure a loan, sometimes LLC loans may require you to give up your protections. Before you get an LLC loan, here is an overview of pros and cons of LLC loans.
Pros
- Easy Access to funds
- Multiple Selection options
- LLC loans can help build credit
Cons
- Personal liability
- Can be more expensive
- Limited declaration requirements
Pros of LLC loans
LLC loans are a more popular financial solution for small businesses. Here are the reasons why these loans stand beneficial
Easy Access to Funds
According to the reports from CB Insights, the most faced problem due to which startups don’t succeed is that they run out of cash or they can’t afford new investment. But an LLC loan can cover these financial needs when you experience that the expenses exceed from the profit of the business. LLC loans are often used to start a new business, purchase real estate, inventory or equipment.
Multiple Selection Options
LLC loans can be accessed through credit unions, traditional banks or online banking. You can choose any of the following type of LLC loans:
- Banks Loans which are best for established businesses
- Term Loans are best for long-term investments
- Business lines of credit for covering short term expenses
- SBA loans are best option if you are seeking an affordable loan and don’t have access to other financing options
- Equipment Loans best for equipment purchase
LLC loans can help build credit
Some LLC loans can help build business credit if the lender reports your account activity to the credit bureaus and you manage the loan very well. It’s common for traditional banks and credit unions to report account activity. Financial institutions may also report business loans to credit bureaus.
Keep in mind that some lenders don’t report to the credit bureaus. This often happens in case of merchant cash advances, invoice financing and invoice factoring. Make sure to deal with a lender to see if he reports to credit bureaus and ask which bureaus they report to.
Cons of LLC Loans
LLC loans also have some disadvantages to consider.
Personal liability
While an LLC can protect your personal assets from business debts, lenders often bypass this by asking for a personal guarantee. By giving a personal guarantee, you agree to take on personal responsibility for repaying the loan if your company can’t. This means that if your business can’t pay back the loan, the lender can go after your personal assets.
LLC loans can be expensive
LLC loans with the lowest interest rates are typically given to borrowers with good to excellent credit scores. If your credit score is lower, you’ll likely pay more for funding. High interest rates are common for bad credit business loans, such as merchant cash advances, invoice factoring, and invoice financing.
Even with a business line of credit, you may be considered to pay a lot in interest, regardless of your credit score. Interest rates can be variable, meaning they might start low but could rise significantly with market changes.
Limited disclosure requirements
Consumer lenders must reveal the annual percentage rate (APR) to borrowers on consumer loans, as required by the Truth In Lending Act. This information is provided when you apply for a loan or credit card, it helps you understand the expected borrowing costs.
However, this rule does not apply to business loans. Business lenders aren’t required to show their rates and fees on their websites, nor are they required to provide APRs. Instead, they might use simple interest or factor rates. It makes it more challenging for business owners to compare different lenders.
An LLC loan can help your business grow if you’re making a profit but need extra funds to seize growth opportunities. It’s important to compare the different types of LLC loans to find the best fit for your company and weigh the pros and cons of each option. Additionally, consider exploring various alternatives to LLC loans if the drawbacks outweigh the benefits for your business.
Increase your business’s potential with an LLC loan today! Compare loan options, find the perfect fit, and take advantage of growth opportunities. Sign up with Cashably now and give your business the growth increase it needs!
