How to Fund Your LLC? (10 Best Funding Approaches)

Delina Chantel Yasmeh
Published by Delina Chantel Yasmeh | Author
Last updated: April 14, 2024
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Are you planning to become a business owner but don't know how to fund your small business? Many people are in this position and need helpful advice on the best ways to finance their LLC.

As a mergers and acquisitions specialist who helped entrepreneurs form their businesses, I'll share my insights on the different ways I helped my clients fund their limited liability companies.

While some business professionals recommend self-funding, others encourage you to consider external sources. We will discuss the advantages and disadvantages of each approach.

Quick Summary:

  • You can fund your LLC through personal funding, applying for business loans, acquiring a credit card, and pitching your business plan to investors.
  • It is possible to fund your LLC through several capitalization sources based on the funding requirements.
  • APR for a small business loan from traditional banks is between 5.89% and 12.23%, while an SBA loan is between 11.5% and 15%.
  • I advise my clients to determine the nature of the business in terms of the service or product to ascertain the necessary capital required.


10 Best Ways to Fund Your LLC

A man holding money bills and deciding how he will fund his llc

When thinking about starting an LLC, most business owners begin their journey by thinking about how much money will be needed and where they can find it.

The amount depends on your financial situation and the main idea of your business.

1. Self-Funding

One way to finance a small business is through self-funding. You will be using your own assets—money, savings, and other liquid personal assets—to get the business started.

According to the SCORE survey, a significant 78% of entrepreneurs launched their businesses using personal funding and income from other jobs, showing the prevalence and importance of self-financing [1].

There can be some risk associated with this approach; if the business fails, you may lose some or all of your own assets.

However, if it is successful, you will have complete control over the company and no outside investors to answer to.

To reduce the risk of self-funding, I encourage clients to make regular payments back to themselves from business profits. That way, you will ensure that you don't lose everything if things go wrong.

2. Rollovers as Business Startups (ROBS)

Handshake for partnership in a custom background

ROBS is a type of alternative business financing that allows you to use retirement money to establish, acquire, or grow a company.

ROBS are not retirement accounts like 401(k) loans or early payouts. Instead of worrying about debt and interest payments, ROBS allows you to invest your retirement assets in the growth of your company.

However, if your company fails, you run the danger of losing your retirement assets.

3. Crowdfunding

Crowdfunding involves asking people online (on sites like Kickstarter or Indiegogo) for donations.

There are a few things to keep in mind when crowdfunding:

  • You'll need an innovative marketing approach to have people donate money to you.
  • You may not be able to raise as much money as you want through crowdfunding.
  • It can take time for the money raised through crowdfunding to reach you. You'll be able to withdraw it once your campaign is over. Depending on the website and how long your fundraising time is, this could take weeks or even months.

In my experience, crowdfunding is an excellent option for funding a business if no other funding options are available to you.

4. Informal Loans From Personal Network

Giving someone money on top of a clipboard documents

Informal loans from personal networks entail no bureaucratic procedures and have negotiable interest rates and payment schedules. Your friends or family members could lend you money to help you get started with your business.

There are a few things to keep in mind when borrowing money from people you know:

  • The loan should be in writing, even if it is an informal agreement. It will help protect both you and the lender in the event of a dispute.
  • You might need to pay interest on the loan, even if it is an informal agreement.

5. Grants and Local Government Programs

Grants and local government programs may be offered to small businesses.

These can be a great way to get started with your business without having to invest any of your own money.
You will receive free startup funds from the government that you do not have to repay, as it is not a loan.

You might need to meet specific qualifications before you are eligible for these programs.

Governments give grants for a specified purpose or to specific groups of people. There are awards for small businesses led by women, minorities, immigrants, military veterans, and even felons.

The downside of government grants is that there is usually a lot of competition for them. A colleague of mine had to create a good business plan and present it well to stand out from the other applicants.

"Treat your business plan as a living document rather than just a paper that sits on a shelf. It should contain your vision, goals, strategies you’ll use, and some of the challenges you’ll have to overcome."

- Jon Morgan, CEO, Co-Founder & Editor-in-Chief of Venture Smarter

6. Venture Capital

Putting money on his suit

Venture capital is a type of financing wherein investors provide funds for small businesses. They will want a part of the profits from your business or equity in exchange [2].

Venture capitalist investment can be a great option if you have a solid plan since they can provide funding, advice, and mentorship to help your business flourish.

However, I inform my clients that venture capitalists have the option to make management decisions and take control of the business.

7. Traditional Loan Institutions

Traditional loan institutions include banks and credit unions. These lenders require a solid business plan and collateral before they agree to give a business loan to an LLC.

According to the Fundera data, the average small business bank loan amount is $633,000 [3]. However, major financial institutions approve only 26.9% of these loans, and 29% of businesses fail due to a lack of cash flow.

This data highlights the challenges small business owners face when seeking traditional loans and underscores the importance of preparing a robust business plan and having a clear strategy for cash flow management.

There is also the option of requesting a home equity loan if you have equity in your home.

Depending on the amount of money you are applying for and your credit score, it can take time to get a business loan from traditional lenders.

Yet, we had a wonderful experience with Novo, which is why we give it our endorsement.

8. Credit Card Loans

Credit card loans give you immediate buying power or capital without applying for a loan and filing paperwork.

There are companies that offer business credit cards with low or no annual fees and interest rates. Some entities offer cashback on business expenditures.

Because the interest can be high, I remind clients and new business owners to look at credit cards as short-term financial aid that they should pay back as soon as possible [4].

9. Adding Members to the LLC

Adding members to your LLC can provide you with additional capital and widen your network. New partners can provide contact with potential investors and clients.

10. Peer-to-Peer Lending Sites

Handshake with money involved

Eligible businesses can use these peer-to-peer portals to get financing by applying for an online loan. Business owners with site accounts have the option of funding their company with interest-based loans.

These P2P lending sites offer lower interest rates and are online alternatives to traditional banks.

FAQs

What Are Capital Contributions to an LLC?

Capital contributions to an LLC are a phrase used to describe a member's participation in the company. When forming an LLC, each member will pay an initial financial subsidy. There are no minimum amounts for this initial capital contribution.

How to Apply for an LLC Loan?

To apply for an LLC loan, you should first check your credit score and select the type of LLC loan suitable for your business. Talk to a commercial lender and inquire about their various lending programs, calculate the amount of debt you can afford, and prepare the required documents.


References:

  1. https://www.score.org/resource/blog-post/how-do-entrepreneurs-finance-their-startups
  2. https://www.investopedia.com/terms/v/venturecapital.asp
  3. https://www.fundera.com/business-loans/guides/average-small-business-loan-amount
  4. https://www.mycompanyworks.com/funding-your-company-top-ways-to-finance-your-llc-or-corporation/

About The Author

Author
Delina Chantel Yasmeh, J.D./Tax LL.M, specializes in Mergers and Acquisitions at Deloitte and PwC, managing billion-dollar transactions. Educated in Accountancy at California State University and holding advanced degrees from Loyola Law School, she is highly skilled in tax law. Delina also dedicates time to pro bono work for women and children.
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Growth & Transition Advisor
LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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