How To Get a Business Loan as an LLC

Limited liability companies (LLCs) are a popular way for entrepreneurs to create and run a business. Like many other types of organizations, LLCs often need to borrow money to grow. Fortunately, by taking a few simple steps, you can maximize your chances of being accepted for an LLC small business loan.

Understanding Why You Should Form an LLC

LLCs provide several advantages to small business owners:

  • LLCs are a “separate legal entity” from you, which means they have their own assets, liabilities, bank accounts, etc.
  • LLCs can reduce your personal liability to debts incurred by the LLC, although providing a personal guarantee to a lender will remove this shield.
  • LLCs can have their own credit histories and credit scores, in addition to your personal history and score.
  • Taking the time to form an LLC shows that you’re serious about business and can help when it comes to getting customers, working with banks, and finding suppliers. 
  • In some cases, an LLC can provide tax advantages with the IRS.

Creating an LLC Before Applying for a Loan

You will need to legally create an LLC before borrowing money. Forming an LLC is quick and easy, and you can either do it yourself or use one of the many company formation services.

  1. Find out what agency is responsible for forming businesses in your state. For most states, this will be your secretary of state.
  2. Gather together information about your business and file “Articles of Organization” to legally form your LLC.
  3. Once your LLC is formed, get a separate bank account and complete any other steps like getting an Employer Identification Number.

Establishing Why You’re Borrowing and How Much Your LLC Needs to Borrow

Before applying for a loan, you’ll need to ask two important questions:

  1. Why does my LLC need this money?
  2. How much money does my LLC need?

Lenders will want to know what your LLC is using the money for. This might include:

  • Expanding into new products, services, and marketplaces
  • Increasing your inventory to meet customer demand
  • Investing in employees, assets, or equipment
  • Refinancing existing debt for better terms and interest rates
  • Increasing your working capital to maximize opportunities
  • Buying or renting real estate

Once you know the purpose of a loan, you’ll need to carefully work out exactly how much to borrow. This will involve deep research into your chosen area, projecting future demands and costs, analyzing your LLC’s financial situation, and speaking with experts.

Creating a Strong Foundation for Your LLC Loan

Lenders rely on extensive documentation and reports to decide if they want to lend to your LLC. One of the most common reasons small business loans are turned down is a lack of supporting information and evidence.

Requirements do vary by lender, but we’ve listed some common ones below.

Financial Documents for an LLC Loan

You can get the necessary financial documents from your accountant and your bookkeeping software:

  • A balance sheet that lists what your LLC owns and owes at a particular point in time
  • A profit and loss report that shows where your LLC revenue is coming from, your expenses, and the profit you have left over.
  • A cash flow statement that shows how money is moving through your LLC
  • Detailed projections of your future revenues, expenses, and profits, based on multiple future scenarios
  • Account statements for your LLC like bank and credit card transactions
  • Tax returns for you (pass-through income from your LLC on your 1040) and your LLC (1040 Schedule C)
  • Your debt schedule and repayment plan if you already have loans

Business Documents for an LLC Loan

The more supporting evidence in your LLC business documents, the better. This includes:

  • Basic facts about your LLC like its name, address, industry, locations, etc.
  • An operating agreement for your LLC that shows how various aspects of the business are managed
  • An LLC business plan that details areas including a business overview, operations plan, sales and marketing plan, competitive market analysis, product and service overview, financial plan, projections, and a management team summary
  • Any legal contracts and agreements you have in place with other third parties

Other Helpful Factors for an LLC Loan

There are several other areas that will maximize your chances of getting an LLC loan:

  • Business licenses and operating permits for your LLC
  • Your LLC’s Employer Identification Number (EIN)
  • A strong personal financial history and credit score, as this shows you’re good at managing your own money, which can translate to responsible business management
  • A business history and track record that shows how your business has survived and grown—a history of at least two to three years will give you the best chance
  • A business credit score

Collateral, Personal Guarantees, and LLC Loans

It’s important to understand how business or personal collateral, guarantees, and liens will impact your ability to get an LLC loan. LLC loans with collateral are secured, while loans without collateral are unsecured.

  • Collateral is an asset or combination of assets that the lender can seize and sell if you fail to make repayment on your loan. Collateral might include your business or personal bank accounts, inventory, equipment, vehicles, or real estate.
  • A personal guarantee is an agreement with a lender that says you will be personally responsible for your LLC’s debts if the LLC defaults on that debt. This normally means that your personal assets will be liable if you don’t make repayments.
  • A blanket lien means a lender can lay claim to any or all of your small business assets if you default on your loan. With a blanket lien, you don’t need to define your collateral upfront, but all of your assets are liable to be seized and sold up to the total value of your loan. 

It’s very important to note that the liability protection offered by an LLC does not apply if you make personal guarantees or otherwise agree that your personal assets can be used to settle the balance of an unpaid loan.

Matching Your LLC Financing with the Right Lender

If you need a loan for your LLC, we can help. Our specialized loan marketplace matches your business needs with the right lenders to get you affordable financing and help your LLC thrive.

Webinar: Writing a Business Plan

If you are applying for financing, a solid roadmap becomes especially important as it is the best way for a lender to get a feel for you and your business.

Disclaimer:  the information provided on this page is meant for general informational purposes only and may not reflect the most current resources and recommendations available. Please consult with your financial, tax, legal, and other relevant advisors when making decisions about your small business.