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Guide to Getting a Business Loan as a Limited Liability Company (LLC)

Guide to Getting a Business Loan as a Limited Liability Company (LLC)
Lauren Ward

Lauren Ward

Updated February 15, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Incorporating your business as a limited liability company, or LLC, gives your personal assets a layer of protection when you take out a loan. There are a number of different types of LLC business loans that can help you grow your business while minimizing your personal risk. Find out what type of LLC small business loans are available and how to improve your chances of getting approved.

What Is a Limited Liability Company (LLC)?

A limited liability company (or LLC for short) is a popular option when choosing a business structure. Essentially, an LLC is a separate legal entity from you that’s created under state law. It has its own assets, liability, bank accounts, and credit profile separate from yours.An LLC can have one or more owners, and each owner is called a “member.” Even if you’re just a one-person operation, however, you may still wish to opt for this business structure. Unlike a sole proprietorship (which is owned by one person with no distinction between the business and the owner), the members of an LLC have liability protection from the debts and obligations of the business. That means a business creditor or someone who sues the business can’t come after the personal assets of the owners. Like a sole proprietorship, however, the owner of an LLC pays taxes as an individual (not a corporation). To form an LLC, you choose a name and you must file articles of organization with your state's corporate filing office, often the Secretary of State. And, if an LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN).

Pros and Cons of Forming an LLC

Here are some of the pluses and minuses of forming an LLC.Forming an LLC provides many advantages to small business owners. One of the biggest is that it can reduce your personal liability to debts incurred by the LLC. This liability protection comes without the work and expense of forming a corporation. There are also some tax advantages. An LLC has pass-through taxation, meaning it does not pay corporate taxes on profits. Business profits pass through to the members, who pay personal incomes taxes on salary and other distributions received from the LLC.On the downside, LLCs do not issue stock, which can be a powerful tool when raising capital. And, LLCs typically face higher annual fees than corporations. Some states also require annual reports in order to keep an LLC in good standing. Another potential negative is that if a member joins or leaves an existing LLC, that LLC may be obligated to dissolve and reform with new membership.

How the Small Business Loan Process Is Different for LLCs

LLCs follow the same loan application process as other types of businesses. The major difference is who holds liability for the loan funds in case the borrower defaults. With an LLC, the company owners are not personally responsible for the loan funds unless they sign a personal guarantee. In order to avoid having to sign a personal guarantee, your company typically needs to have an established financial track record or have some type of business assets to use as collateral to secure the loan.

Types of LLC Business Loans

When exploring business loans for your LLC, here are some lending options you may want to consider.

LLC Bank Loans  

Banks will offer some of the most ideal loan amounts, terms, and interest rates. However, getting a business loan for an LLC from a bank generally requires strong financials and a good credit score. You also typically need to submit a fair amount of documentation in order to complete your application. If you’re looking for fast financing, a bank loan may not be the way to go. 

LLC Unsecured Loans

If your LLC is short on valuable assets, or you would prefer not to put assets down as security on loans, an unsecured business loan may be a good option, since they don’t require any collateral to qualify. However, since the risk is higher on the lender’s part, interest rates for unsecured business loans are typically higher than secured loans.

LLC Online Term Loans

Online term loans generally have more flexible requirements than bank loans — meaning new LLCs, and even those with bad credit may be able to qualify. In addition, the application process is typically quick and easy and funding can be fast. However, the ease and flexibility come at a cost — online business term loans tend to have higher interest rates and fees than traditional bank loans.

LLC SBA Loans

LLCs are eligible to apply for SBA loans, which are offered by private lenders but backed by the U.S. Small Business Administration. Because this backing reduces risk for the lender, SBA loans offer LLCs some of the best interest rates, loan amounts, and repayment terms out there. However, SBA loans also have tougher qualification criteria when compared with other types of LLC business loans. And, the application process can take months to complete.

LLC Invoice Factoring

If your LLC processes a large amount of client invoices, another option to consider is invoice factoring. With this type of financing, the factoring lender pays you a percentage of your outstanding invoices up front. Once an invoice is paid, you’re given the remaining balance after a fee is subtracted for the lender. This type of financing can offer quick cash. However, fees can be hefty and the factoring company may take over communication with your customers.

LLC Line of Credit

A business line of credit works differently from a traditional term loan. Rather than receiving a lump sum of money, a business line of credit gives you access to a pool of funds that you can draw from when you need funding. You only pay interest on the funds you draw. Once you’ve repaid what you’ve borrowed, your line of credit will typically reset to the original amount. This can be a good way to iron out seasonal cash flow issues and keep you prepared for unexpected expenses.

LLC Merchant Cash Advance

If you need cash quickly and your LLC processes debit and credit card payments from customers, you might consider a merchant cash advance instead of a loan. With this option, you get a lump sum of money upfront from the lender. Then the lender takes a percentage of your business’s future credit and debit card transactions sales until the borrowed amount, plus a fee, is repaid. This type of LLC financing is typically more costly than other options.

What Documents You May Need

Lenders generally require extensive information and documentation to decide if they want to lend to your LLC. Requirements do vary by lender, but we’ve listed some common ones below.

Financial Documentation  

  • Business credit report
  • Income tax return
  • Personal financial statements from all owners with at least 20% interest in the LLC
  • Up to one year of business bank statements
  • Projected cash flow, income statements, and balance sheets
  • Collateral documents that outline the value of any assets you intend to secure the loan with
Online lenders may allow you to digitally connect your banking and accounting software to import some of this information directly. 

Business Documents

As an LLC, you’ll need to submit your LLC’s Employer Identification Number (EIN) and possibly also your IRS Form SS-4 notice (this is the notice you receive after filing an SS-4 application for your EIN). You may also need to submit your articles of organization, which designates your registered agent and management structure, as well as your operating agreement to confirm the ownership structure, revenue sharing percentages, and other details. In addition, a lender might request a business plan to demonstrate the market, competitive landscape, and growth projections after using the loan funds.

Other Important Documents

A lender may also want to see any relevant legal documents that impact the LLC’s finances. This could include existing loan agreements, leases, and contracts with other businesses. 

Tips for Getting an LLC Business Loan

Below are some tips for choosing the best loan while also expediting the application process as much as possible. 

Determine What You Need

Before you start applying for an LLC business loan, you’ll want to think about what you will do with the loan, and exactly how much you will need to accomplish your goal. You may also want to create a detailed plan for how your company will use the funds and what impact you expect the money to have on your business growth. Some lenders will ask for this when you apply for the loan.

Consider Your Qualifications

Key factors lenders look at to determine your eligibility for a loan include:
  • Revenues: Lenders will want to know if your business has sufficient cash flow to repay the loan or financing. 
  • Credit: This shows lenders how your company has managed debt in the past. If your business doesn’t have much credit history, the lender will likely want to check your personal credit.
  • Time in business:  Many lenders have a minimum time in business requirement. Some require a minimum of two years in business, while others will provide financing to younger businesses and even startups. 
  • Collateral: This is a tangible asset pledged to secure the loan. Not all business loans require collateral.

Compare Lenders

There are a variety of business loans available, and it can be wise to compare multiple options to find one with a repayment plan that works best for you. In addition to looking at the interest rate, you may also want to keep an eye out for any other costs, like origination fees (this is a percentage of the loan funds a lender takes as payment for processing the loan) and prepayment fees (a fee charged for paying off the loan early), which also impact the cost of the loan. 

Gather Documentation in Advance

It can take time to collect all of the legal and financial documents you need to apply for an LLC business loan. Since most lenders request most of the same information, you can start pulling those documents as you’re rate shopping. Once you start to apply for a loan, make sure your business loan application includes everything the lender asked for and in the appropriate format. This can help reduce any unnecessary back and forth, so you can get a decision as quickly as possible.

The Takeaway

Getting a business loan as an LLC can help you reach your financial goals with an extra infusion of working capital. The best loan choice will depend on your LLC’s needs, as well as factors like your credit score, if you have collateral, how long you’ve been in business, and your company’s annual revenue. If you’re curious about what type of loan your LLC might qualify for, Lantern by SoFi can help. With our easy-to-use online tool, you can review and compare small business loans that meet your LLC’s needs and qualifications without any obligation and just one application.
Photo credit: iStock/whyframestudioThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. SOLC1221008

Frequently Asked Questions

Can you get a business loan as an LLC?
Is it hard to get business loans as an LLC?
Can LLCs borrow money from banks?
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About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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