Last updated: October 3, 2022

Consider how many months or years it may take to learn everything you need to know about starting your firm, and now that you've completed all of the groundwork, it's time to make your idea a reality.

But where will you get the money for your new LLC?

If you're like many business owners and entrepreneurs, one of the first things on your mind is business financing for operational expenses and purchasing equipment.

While you may want to secure funding ahead of time, certain lenders such as banks urge that you create an LLC for at least six months or one year (depending on the lender) before providing company loans.

Entrepreneurs who want to finance their enterprises financially but lack start-up money are in a bind. Fortunately, there are other options for business financing!

How To Set Up For A LLC Loan

Thinking and reading a document

To begin, you'll need to research lenders and compare rates before creating your LLC.

Make a list of the business loans you wish to take out and the maximum amount you can afford for each one.

It's time to get started with good planning once you've made a list.

It's best to budget for three to six months of operating expenses in case you don't have enough cash on hand.

It'll be simpler to show lenders that you can manage business loans if you're prepared.

Once you've chosen your keywords, contact a commercial lender specializing in small companies and entrepreneurs.

Make sure they understand what you want to use the loan for. If you're unfamiliar, consult your commercial lender regarding which sort of loan is appropriate for your company.

The bank will then need to know how much money you intend to borrow so that they can determine your eligibility.

Borrowers will want to see that you have the assets they are looking for, whether it's equipment or real estate that you own outside of the company.

Since LLCs have limited responsibility, lenders will be unable to seize your personal belongings if your firm defaults on its loans.

It's also crucial to examine the interest rate on your company loan. Compare at least three commercial lenders' interest rates, and make sure you can pay off the debt in five years.

Finally, inquire about the amount of paperwork needed for your small-business loan.

After covering briefly what you need to set up a bank loan, you need to ask yourself why you need a bank loan!

Why Do You Need A LLC Loan?

Calculating expenses and assets

There are several reasons why entrepreneurs seek out LLC loans. This can include the following:

  • 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 a loan for your company.

What Commercial Lenders Want To See

A conversation between two businessman

Lenders such as banks or credit unions who provide unsecured LLC loans generally want to see if applicants have the following characteristics:

  1. The amount of money to be borrowed.
  2. The interest rate.
  3. A summary of how the funds will be used.
  4. A business plan should include a section describing your short- and long-term goals.
  5. Justify your wealth by producing evidence of adequate assets to cover the loan 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 a loan.

Speaking of loans, did you figure out which type suits your business?

Well, we got you all the details you need to know about the 6 types of business loans!

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Types of LLC Bank Loans

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

SBA Loans:

Signing on a loan form

SBA loans fn be a great choice for many businesses, and they're easy to qualify for. SBA loan application is simple and straightforward, and the amount you'll need won't break the bank.

They make it easy to use your business as collateral for this type of loan if you want another source of capital.

Pros

  • Repayments start as low as $50 a month, and the repayment terms range from 6 to 30 years.
  • No collateral is required.

Cons

Interest rates are capped by law, so they don't fluctuate with the economy, but this can sometimes be a drawback if you need lower interest rates.

Business Cash Advance

Man in suit holding an amount of cash

If you need a cash boost, a business cash advance might be the right type of loan for your business. It's quick and easy to get this kind of business loan.

You can sometimes have the money in your account the next day after approval.

Pros

Easy to qualify for no collateral is required.

Cons

Some lenders charge a fee for using an advance, which can add up over time.

Working Capital LLC Business Loans

Using a calculator on an office table

A working capital loan is the type of business loan you'd want if your business needs to expand or grow.

You'll want to look for a very high-interest rate to make sure you can pay back this kind of business credit card once all charges are accounted for.

Pros

You don't need any collateral, but your company must have a good credit score.

Cons

Repayments are tough due to the high-interest rate, so you may need someone close to the business to cosign this type of loan.

Asset-Based Lending

Asset-based lending is a loan that's secured by the assets of your company.

This type of commercial loan is a good choice when your company needs to purchase equipment or assets that would otherwise be difficult to acquire with other types of loans.

Pros

You can get up to $5 million, and this type of credit line might be a good idea if you have valuable property.

Cons

The interest rates on this are high or based on LIBOR (the London Interbank Offered Rate, which fluctuates heavily).

Merchant Cash Advance

Giving a credit card to another guy

A merchant cash advance is a business loan backed by money your company receives from credit card sales. Your revenue acts as collateral for this kind of credit line.

Pros

This type of unsecured business credit card can be a source of cash for your business right away.

Cons

You'll need at least $50,000 in revenue to qualify, and interest rates can be very high.

Unsecured LLC Business Loans

This is the opposite of a merchant cash advance since credit card transactions do not back it.

You may find yourself on this type of business credit card.

These loans can be a lifesaver if you need funds for expansion or to keep your company afloat during tough times.

Pros

Unsecured loans are much easier to qualify than other types of commercial credit cards, and repayment terms may be manageable.

Cons

The interest rates on these loans are high.

Invoice Factoring

Passing the document while shaking hands

An invoice factoring arrangement is a form of business funding that allows you to use your invoiced goods without selling them.

This might be crucial if you have a large account receivable and need cash right now, unsecured due to slow payers on your record.

Pros

This is an unsecured business credit card, so it's easier to qualify for than other types of commercial credit lines.

Cons

The interest rates on this loan are high, plus you'll need at least $50,000 in revenue to qualify.

Which Type of LLC Business Loan is Right for My Business?

Woman thinking seriously on the paper

The greatest way to borrow a substantial amount of money is with an asset-based loan.

This is the only type of commercial credit card that can meet your needs if you need more than $5 million in business credit.

A Working capital LLC business loan or unsecured company loan might be preferable if your business does not have any assets.

If your firm is not making enough money to receive an unsecured company or working capital loan, you may need a merchant cash advance.

However, this type of business credit card comes with high-interest rates and fees, so it's often used as short-term financing rather than long-term funding.

Unsecured business loans are a wonderful choice for businesses that need cash right away, but these types of commercial bank cards come with hefty interest rates.

It's still preferable to other financing options because repayment terms are typically more manageable when compared to other loans.

Invoice financing might be an excellent option for your company, but you'll want good clients with outstanding invoices.

Suppose your company isn't eligible for other types of small-business credit cards.

In that case, you may wish to look into standard lenders' small-business loans or alternative funding alternatives such as peer-to-peer lending.

Although this is not a form of a business card, it might help you get money fast. If you've tried all other options and still can't find financing, you may wish to consult a small business funding specialist.

Remember, these loans come with hefty interest rates, so make sure it's worth taking on debt for this much money.

If you want to use the correct sort of company loan to achieve your objectives, you should seek advice from a professional business consultant or HR manager.

If you need further assistance, speak with a financial expert.

FAQs

Is It Hard to Get a Loan With an LLC?

A small business loan is hard to obtain. You can't just get one because you have inventory and property to use as collateral.

For the loan, you need to have been in business for three years, be able to show your financial statements, and have at least $50,000 in revenue.

Is It Possible to Obtain a Loan if My Credit Score Is Bad?

Yes, but it's difficult. Try building up your credit score by paying your bills.

What Are the Criteria for Obtaining LLC Business Loans?

3 years of market experience, Acquired Entity, and Proof of ability to pay back

Is It Possible to Obtain a Loan if I Form a Limited Liability Company?

Yes, as long as the LLC has sufficient assets valuable to the bank. This includes real estate, inventory, etc.

How Does a Limited Liability Company Get a Business Credit Card?

The amount of money you borrow and the type of assets you have that will be accepted as collateral are two factors that influence the lender's decision.

In general, if you have financial assets that can be used as credit, such as real estate or equipment, you may approach a bank to request an LLC company card.

LLC Business Loans: Conclusion

To summarize, depending on what type of short-term credit line your business needs, you should be able to find an LLC loan that's best for your company.

Each loan has its benefits and drawbacks, so you'll have to determine the most important for your business's financial health.

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