Best Way to Get a Business Loan as an LLC (Tried & Tested)

Delina Chantel Yasmeh
Published by Delina Chantel Yasmeh | Author
Last updated: June 19, 2024
FACT CHECKED by Lou Viveros, Growth & Transition Advisor
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Loans can benefit an LLC by providing access to capital, which may be used for operational costs, business expansion, cash flow, and the acquisition of property or equipment before you even start an LLC.

So, could unlocking a business loan be the key to scaling your operations or optimizing your financial strategy?

If your LLC decides to obtain one, Venture Smarter has identified several financial entities available to suit your company's specific needs.

As a Mergers and Acquisitions specialist who helped several companies and individuals acquire business loans, I understand the qualifications and the process of obtaining one.

Continue reading to explore step-by-step how to find and secure the right financing for your LLC.

Quick Summary

  • There are several types of loans which an LLC can obtain to provide capital or supplement the company's finances.
  • An LLC can avail of a loan from banks, credit unions, or online lenders, based on the status of the company, and the requirements of the financial institution.
  • In the 2023 fiscal year, the SBA showed approval of loans equaling $27.5 billion in funding.
  • In my years in the industry, I stress the importance of acquiring a loan that you and your business absolutely need and can afford to repay.


How To Get an LLC Loan?

A man planning to setup an LLC business loan

To get an LLC loan, Venture Smarter recommends evaluating your company's needs, reviewing your financial status, creating a business plan, comparing lenders, preparing documentation, and applying for the loan.

Read the guidelines below:

  • Assess your company’s needs: Identify the purpose of the loan and determine if it would benefit the company based on what it is allocated for. Make a list of the business loans you wish to take out and the maximum amount you can afford for each one.
  • Review your LLC’s financial health and credit score: The institution will need to know your company’s financial background and credit history to determine if you’re eligible.
  • Create a business plan: To qualify for an LLC loan, I advise clients to craft a comprehensive business plan, which they could present to financial institutions and creditors. It would enhance the company’s credibility and prove the capacity to pay.
  • Compare lenders: You'll need to research lenders and compare rates before deciding on which loan to obtain. Generally, you could obtain financing through banks, credit unions, and online lenders. Banks typically offer the lowest interest rates, but it is more difficult to get a loan approval. Compare at least three commercial lenders' interest rates, and make sure you can pay off the debt in five years.
  • Prepare required documents: There are business documents you have to compile and submit to qualify for a loan. These include personal information, company details, financial records, tax returns, and legal documentation. In my experience, some creditors will want to see that you have the assets they are looking for, whether it's equipment or real estate owned by the company.
  • Apply for the loan: Contact a commercial lender specializing in small businesses. Make sure they understand what you want to use the LLC loan for. If you're unfamiliar with this, consult your commercial lender regarding which sort of loan is appropriate for your company.

What Are the Types of LLC Bank Loans?

There are several distinct types of business loans. Let's discuss each of these in detail:

1. Bank Loan

Bank loans constitute the most traditional form of acquiring finances for business entities in need of capital or supplementary funding.

"I started off in Brooklyn, New York, with a small loan and built a business that today is worth well over $10 billion."

- Donald Trump, 45th US President & Business Tycoon

Banks generally feature lower borrowing costs/interest compared to other credit institutions and allow an extended repayment period.

Banks, however, have strict requirements like a two-year business tenure minimum, an annual revenue of at least $100,000 and a good credit score, as reviewed by CNBC News [1].

Further, it may take weeks to process your loan application before receiving a decision on your funding.

Pros

  • Lower interest rates/borrowing costs
  • Extended repayment period means lower monthly payments

Cons

  • Strict compliance requirements
  • Slow turnaround approval period

Venture Smarter recommends that LC owners get bank loans if their business is established and has a good credit history. You can compare which banks offer the lowest interest and the repayment plan best suited for your business.

2. Small Business Administration (SBA) Loan

Signing on a loan form

SBA loans are small-business loans offered by banks and other lending institutions, partially insured and guaranteed by the U.S. Small Business Administration. The loan is available in flexible repayment terms and offers low interest rates.

According to Bankrate insight, the Small Business Administration for the fiscal year 2023, SBA 7(a) lending institutions granted a total of 57,362 loans, cumulating to $27.5 billion in financial assistance for small businesses [2].

However, your LLC has to meet a tight eligibility criteria to avail of an SBA loan. To qualify, you need to have an established business with sound finances and a good credit history.

"The application requires extensive documentation and may take up to three months to process."

- Jon Morgan, MBA Certified Market Researcher & Financial Analyst

Pros

  • Low interest rates and fees
  • Flexible repayment period

Cons

  • Difficult qualification standards
  • Slow turnaround approval period

There are several types of financing offered through SBA loans, and you have the option to avail which specific plan is suited to your needs.

Your LLC should consider an SBA loan for its favorable repayment conditions.

3. Merchant or Business Cash Advance

Giving a credit card to another guy

A merchant cash advance allows your LLC to receive the loan immediately, and the lending company collects future payments from a designated business bank account or through anticipated sales from your credit or debit card.

Your LLC has a greater chance to get approval for an MCA loan, but a client of mine has to pay interest rates that are comparatively much higher than other credit providers.

Pros

  • High approval rates
  • Immediate funding

Cons

  • High interest rates
  • Limited to businesses that conduct sales through credit cards

An MCA loan may be availed by LLCs experiencing cash shortages, capital supplements and emergency funding.

4. Equipment Loan

If your LLC needs funding specifically to purchase business equipment, this type of credit would best suit the company's needs.

Since the equipment automatically stands as collateral for the loan, it is easier to get approved.

With Venture Smarter's guidance, you can navigate the diverse offerings of banks, online lenders, and other creditors, enabling you to select the one that offers the loan type you need at the lowest interest rate available.

Pros

  • Self-collateralizing and easy to obtain
  • Enables purchases without affecting the cash flow

Cons

  • Due to accrued interest, you pay more than the actual value of the equipment

5. Invoice Factoring

Passing the document while shaking hands

Invoice factoring occurs when an LLC turns over its outstanding invoices to a factoring firm. The firm pays an advance and remits the remaining amount, minus the factoring fees, once the customer settles the invoice.

Your company can avail of the cash immediately, and the option is available for businesses with fair or bad credit.

Pros

  • Fast application and funding process
  • The credit history is not a factor

Cons

  • Factoring fees can be high
  • The invoice value is capped at 85%

6. Term Loan

Using a calculator on an office table

Term loans provide businesses with a one-time upfront payment which must be repaid over a fixed period, with interest. Banks and credit unions tend to offer the lowest rates, but may be harder to qualify for.

In my experience, an online lender may have higher rates, but businesses have a better chance of approval, and faster funding.

It is important to note that the rates are not fixed, but rather, depend on your company's time in business, cash flow and credit history.

Pros

  • Offered by different financial institutions
  • Comparatively lower rates

Cons

  • May be difficult to qualify
  • Some lenders require collateral

Regarding the amount and repayment period, Venter Smarter prefers term loans as they offer several plans your company can benefit from. Simply identify the purpose of the funds, and apply for the corresponding, short, medium, or long term loan.

Success Story: Real-Life Example of an LLC That Thrived After Getting a Loan

As a consultant specializing in helping LLCs navigate the complexities of securing business loans, I've witnessed firsthand the transformative impact that strategic financing can have on a business. One particularly inspiring case involved a client's boutique marketing firm based in Chicago, Illinois.

The firm, although successful in its niche market, struggled with cash flow issues that hampered its ability to expand and take on more significant projects. The primary challenge was the lack of funds to hire additional staff and invest in advanced digital marketing tools, which were essential for scaling their operations.

It was a local community bank that eventually offered the most favorable loan terms, and the loan package we secured was for $250,000 under an SBA 7(a) loan program known for its relatively low-interest rates and manageable repayment terms.

The funds were strategically allocated: 60% towards hiring new talent, including a senior marketer and two junior staff members, and 40% invested in software upgrades and digital marketing tools. Within the first year following the loan, the firm's revenue grew by 45%.

This growth was not only due to increased capacity but also improved service delivery that attracted larger clients, including a major retail chain that signed a year-long contract.

What Do Commercial Lenders Want To See?

A conversation between two businessman

Commercial lenders want to see if applicants have the following information and qualifications:

  • The amount of money to be borrowed
  • A summary of how the funds will be used.
  • A business plan should include a section describing your short- and long-term goals.
  • Justify your wealth by producing evidence of adequate assets to cover the LLC loans and get a personal guarantee from yourself so they know you'll pay it back if you can't.

Make sure you talk with your commercial lender about the paperwork they'll need to start your firm before approaching them for LLC loans.

Why Do You Need An LLC Loan?

Calculating expenses and assets

You need an LLC loan if you need capital for business growth, investment, or even operational needs.

Some of the most common reasons for an LLC loan are:

  • Buy equipment (and perhaps lease it).
  • Pay for advertising and marketing, including radio ads, newspaper ads, flyers, etc.
  • Fund repairs that your company needs to keep operating smoothly.
  • Push through tough times in your business when sales aren't good.
  • What if you don't have enough cash to get your business started? A commercial bank or an alternative lender may always provide you with LLC loans for your company.

Related Articles:

FAQs

What Form of LLC Loan Offers the Lowest Interest?

A secured loan is a form of LLC loan that offers the lowest interest since there is a collateral provided by the borrower.

Can Personal Guarantees Be Required for an LLC to Secure a Loan?

Personal guarantees can be required for an LLC to secure a loan. For this reason, lenders like credit unions often consider the business credit score, personal credit score, and personal assets of the guarantor, to assess the risk involved in lending to the LLC.


References:

  1. https://www.investopedia.com/terms/c/commercial-loan.asp
  2. https://www.bankrate.com/loans/small-business/what-is-the-sba-weekly-lending-report/

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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