How to get a business loan with an LLC

A limited liability company (LLC) is a popular business structure chosen by millions of small business owners. It offers tax advantages and protections that limit the legal liability of the LLC’s members. LLCs are also simple and affordable to register.

Wondering how and where to get an LLC business loan? They’re available through traditional banks, credit unions and online lenders, but before you apply, there are steps to take to make sure it’s the right choice for you. You’ll also want to do everything possible to ensure you’re approved.

Here’s what you need to know about LLC loans and the steps you should take to get one.

Can you get a business loan with an LLC?

Yes, you can get a business loan with an LLC. Business lenders provide loans to a variety of business types, including LLCs, sole proprietors and corporations. Some loans may be specifically marketed as an LLC business loan, but LLCs can apply for many standard business loans.

If you have an LLC, you should have no trouble finding a business loan. You will need to qualify for the business loan requirements, but typically, lenders will give loans to multiple types of businesses. Common requirements include good personal and business credit scores, qualifying business income history and providing collateral for the loan.

How to get a small business loan for an LLC

When looking for small business loans for an LLC, you’ll need to follow the steps provided by the lender. Each lender may have a slightly different process, but these are common steps for applying for an LLC loan.

1. Check your credit score

Some lenders consider business credit reports and scores when making lending decisions. They’re available through Dun & Bradstreet, Equifax and Experian. But your personal credit history and credit score could also be evaluated by small business lenders to determine if you’re a good fit for a business loan and the interest rate you’ll receive.

Personal credit scores range from 300 to 850 — the higher, the better. Along with your credit report, your credit score can provide insight into how you’ve previously managed debt obligations. Traditional lenders generally prefer borrowers with good or excellent credit — typically a score of 670 or higher — but it’s possible to find lenders that are more lenient. For example, you may be able to get an SBA loan with a score as low as 640.

There are also alternative small business lenders like online or peer-to-peer lenders who may work with you if your credit score is lower, but expect steep borrowing costs.

You can request a free copy of your personal credit reports at AnnualCreditReport.com. There are also a few ways to get your credit score for free, like through a credit card issuer or other lender in the FICO Open Access Program.

2. Choose the right type of LLC loan

There are several types of LLC loans to choose from. Before applying, consider the credit score guidelines and weigh the benefits and drawbacks of each option to determine which is best for your company.

3. Calculate how much debt you can afford

When you apply for an LLC business loan, you’ll need to provide the lender with the amount you wish to borrow and the reason you need the funds. Use a business loan calculator to determine a loan amount that doesn’t create cash flow issues in your company.

You’ll enter the loan amount, repayment period and annual percentage rate (or the interest and fees) to generate a monthly payment amount and the total interest you can expect to pay over the loan term.

For example, if you take out a three-year, $10,000 small business loan with an APR of 8 percent, you’ll pay $313.36 per month and $1,281.09 in interest over the life of the loan.

Be sure to tweak the numbers until you find a feasible monthly payment. That way, you’ll know what to expect when shopping for LLC loans. You can also refer to this calculator as you explore lenders and funding opportunities.

4. Compare LLC lenders

Once you know how much you can afford to borrow, the next step is to start researching lenders. Explore what banks, credit unions and online lenders have to offer. Keep lending criteria, business loan interest rates, fees and loan terms in mind when comparing your options.

Most lenders have minimum requirements for borrowers. Lenders usually require a certain amount of time in business, annual revenue and minimum credit score. Consider which lender’s requirements fit your needs best.

Repayment terms can be anywhere from five to 25 years. Longer repayment terms will mean more interest over time but smaller payments spread out over time. Shorter repayment terms will allow you to pay off the loan quicker, but your monthly payments will be higher.

Also, consider approval and funding timelines if you need the loan proceeds sooner rather than later.

It’s equally important to run the numbers to find the best deal on financing. You may find that the lender offering the lowest interest rate isn’t necessarily the cheapest option if they charge a steep origination fee. And if you plan to pay the loan off early, a prepayment penalty tucked away in the fine print could send your borrowing costs soaring. Here are some common small business loan fees to look for:

• Origination fee: Many lenders charge between 1 percent and 5 percent of the loan amount when you open a loan to cover the administrative costs.
• SBA guarantee fee: If you have an SBA loan backed by an SBA-approved lender, the Small Business Administration (SBA) charges a guarantee fee that costs up to 3.75 percent of the part of the loan it guarantees.
• Late payment fee: If one of your payments is late, the lender often charges a steep fee.
• Early repayment fee: Also called a prepayment penalty, some lenders charge a fee if you pay off your loan early.
• Servicing fee: There may be an ongoing fee to cover administrative costs.

5. Gather necessary LLC loan documents

Now that you’re ready to apply, it’s best to gather the required business loan documents the lender will want to see. Here’s a general idea of what you’ll need:

• Personal information. Name, addresses, resume, income sources and contact information for both you and the company’s co-owners
• Company information. Company’s name and address, tax ID or EIN number
• Company financials. Two years of balance sheets, profit and loss statements, cash flow projections, income tax returns and business bank account statements
• Legal documents. Articles of incorporation, business license and proof of business insurance (if applicable)
• Business plan. A document detailing how you intend to use the funds and the financial benefit they’ll provide to your company

Some lenders may request additional documents. And if you’re offered a secured loan, you’ll also need to provide information about the collateral. Inquire with the lender to determine what you’ll need in advance to avoid processing delays.

6. Apply for your LLC loan

Many lenders offer LLC loans. Online lenders let you apply online and upload supporting documents to the online dashboard for review. You’ll most likely receive a decision in just minutes or as soon as one business day.

But a traditional lender could take a few days to a few weeks to hear back, especially if you have to visit a physical location to apply for the loan. The waiting period is often even longer for SBA loans.

Upon approval, the lender will prepare documents for you to review and sign. Once the loan documents are processed, funds will be disbursed to you. The funding timeline varies by the loan product and lender you select.

What happens if your LLC loan is denied?

If your application is denied, you may not be entirely out of luck. Start by reaching out to the lender to learn why your application was rejected and gain insight on what you can do to improve your approval odds moving forward.

You may have to look at different types of loans. You may be a strong candidate for a business loan for bad credit, which will likely have higher interest rates. Also, consider alternative lenders. Online lenders and peer-to-peer lenders tend to have less stringent eligibility guidelines. You may even want to try a crowdfunding platform, which involves raising small sums of capital through donations or investments in your company.

If all else fails, it’s a good idea to take some time to improve your credit health if it’s one of the reasons why you were denied financing.

Alternatives to LLC loans

If an LLC business loan doesn’t seem like the right fit for your business, consider LLC loan alternatives like these:

• Microloans. You can find microloans through alternative lending sources or the SBA. Microloans are loans for a small amount of money (usually no more than $50,000).
• Business grants. This is a free funding source that does not have to be repaid. Business grants are also available to businesses that fall into a specific category, like minority-owned or women-owned companies.
• Crowdfunding. Crowdfunding is a way to source smaller donations from a large number of individuals to source a certain project or business idea. Typically, these individual investors get a reward in exchange for their donation.
• Business credit cards. They operate like traditional credit cards and allow you to re-use the funds, up to the credit limit, as you make payments. Look for options that offer promotional interest-free periods and rewards programs.

Bottom line

Getting an LLC business loan requires that you find a good lender. Compare several lenders before you pick one. You must also meet all the qualifications to apply for a loan from your chosen lender. There are several types of LLC loans, so it’s a good idea to research the different types before deciding which kind you want. Consider the loan amount you need, interest rates, fees and repayment terms available. When you are ready to apply, gather the necessary documents. Then, apply either online or in person and wait to hear if you are approved.

If you decide an LLC loan isn’t right for your business, there are other options. Consider alternatives like business credit cards, business grants or crowdfunding.

Frequently asked questions

• Do you need an LLC to get a business loan?

  Not necessarily. If you operate as a sole proprietor, you could also be eligible for a business loan. But your options may be limited to online lenders and private lenders, as most traditional banks and credit unions are often hesitant to lend to sole proprietors.

• Is it hard to get a business loan with an LLC?

  If you have good credit and can meet the lender’s eligibility guidelines, getting a business loan with an LLC can often be easy. But new businesses and businesses with limited revenue may have difficulty getting approved, especially with traditional banks and credit unions. You may have to seek financing with an alternative lender, which could come with higher interest rates and strict repayment terms.

• How does an LLC business loan work?

  It depends on the type of LLC loan you select. Some LLC business loans are installment loans disbursed in a lump sum and payable over a set period. Others are revolving lines of credit that operate like credit cards and can be used on an as-needed basis.

• Is it easier to get business credit with LLC?

  Yes, it can be easier to get an LLC loan. Some lenders won’t lend to sole proprietors. Establishing your business as a legal entity can make it easier to access financing and could even help lessen lender bias, as a recent study in the Journal of Marketing Research suggests.