Business Loan Options for LLCs

The LLC, or limited liability corporation, the structure allows business owners to separate their personal from business responsibilities. While different than a traditional small business, an LLC can still acquire a loan. However, it may be a bit more challenging due to the separation of the personal and business guarantees.

This blog will explain more about business loan options for LLCs. By understanding your options, you are one step closer to obtaining the funding you need for your business.

Traditional Business Loan vs. LLC Business Loan

On paper, there’s no difference between a traditional business loan and an LLC business loan. The difference is that an LLC business owner is not personally responsible for the loan funds. This makes the lender less likely to approve you without a personal guarantee, which should be avoided.

The best way to increase your chances of approval is to have collateral and a solid financial track record.

Advantages and Disadvantages of LLC Business Loans

Just like other types of funding, some advantages and disadvantages come with business loan options for LLCs.

Advantages

The advantages are as follows:

You can bypass investors
Interest is tax-deductible
Owners are not held personally liable

Disadvantages

The disadvantages are as follows:

Requires an extensive application process
Requires a strong credit score/history
May require collateral

Below, we will go over some of the business loan options for LLCs:

Traditional Bank Term Loans

Traditional banks have been the “go-to” for small business owners to obtain funding for many years. They have some of the most competitive loan offers and obligations- but also have a long approval process and stringent qualification requirements.

Typically, banks require LLCs to have excellent credit scores, strong financials, and polished bank statements. Additionally, banks typically require at least 2 years in business, which means this option is not ideal for new businesses that are looking for quick funds.

SBA Loans

One of the most popular loan options for LLCs is SBA loans, which are guaranteed by the SBA, reducing the risk to the lender. The funding does not come directly from the SBA, but they work with traditional financial institutions to provide it.

Businesses can get up to $5 million with a term of 25 years and the interest rate is typically under 10%. However, this does vary depending on your business credit score and may also depend on your credit score if you sign a guarantee.

It is also important to note that the application process is extensive, and the eligibility requirements are stringent.

Online Business Term Loans

Another loan option for LLCs is online business term loans. Alternative lenders can offer a variety of financing with a more user-friendly application process than traditional financing.

The approval process is much faster with this type of loan and online lenders don’t focus much on your credit history or cash flow. Their primary concern is that you can make monthly payments.

However, it is important to note that the interest rate is typically much higher on this type of loan, normally 8% to 10% or more. The advantage is that you can adapt your repayment terms to fit your business needs.

Business Line of Credit

A business line of credit is similar to a business credit card. Instead of receiving all of the funds upfront like with a loan, you have a line of credit to work with. You can use up to a certain amount. When you use the funding, you only pay interest on what you used- not the total amount until the maturity date when you must start repaying the line. As you pay down what you used, that much becomes available again.

The biggest disadvantage is that the interest rate can go up to 99%. Therefore, take the time to research your options before committing.

Invoice Factoring

Invoice factoring is where the business sells its outstanding invoices to a lender or factor. The factor will advance 80% to 90% of the value of the invoices and take responsibility for collecting from the client. Once the invoice is paid, the factory will send the remaining 10% to 20% minus their fee.

Since the invoices serve as collateral, this type of funding is easy to obtain. The application process is quick and easy. The disadvantage is that the interest rates are between 10% to 79%.