A limited liability company (LLC) is a popular business structure chosen by millions of small business owners. It offers tax advantages and protections that limit the legal liability of the LLC’s members. LLCs are also simple and affordable to register.

Looking for an LLC loan? They’re available through traditional banks, credit unions, and online lenders, but before you apply, there are some steps you should take to make sure it’s the right choice for you. You’ll also want to do everything possible to ensure you’re approved. 

Here’s what you need to know about LLC loans and the steps you should take to get one.

Check your credit score

Some lenders consider business credit reports and scores when making lending decisions. They’re available through Dun & Bradstreet, Equifax and Experian. But your personal credit history and credit scores could also be evaluated by small business lenders to determine if you’re a good fit for a business loan and the interest rate you’ll receive. 

Credit scores range from 300 to 850 — the higher, the better. Along with your credit report, your credit score can provide insight into how you’ve previously managed debt obligations. Traditional lenders generally prefer borrowers with good or excellent credit — typically a score of 700 or higher — but it’s possible to find lenders that are more lenient. For example, you may be able to get an SBA loan with a score as low as 640. 

There are also alternative small business lenders like online or peer-to-peer lenders who may work with you if your credit score is lower, but expect steep borrowing costs. 

You can request a free copy of your personal credit reports at AnnualCreditReport.com. And there are a few ways to get your credit score for free, like through a credit card issuer or other lender found in the FICO Open Access Program.  

Choose the right type of LLC loan

There are several types of LLC loans to choose from. Before applying, consider the credit score guidelines and weigh the benefits and drawbacks of each option to determine which is best for your company. 

LLC loan type Minimum credit score Advantages Disadvantages
Term loan 580
  • Lump-sum loan that’s payable over a set period
  • Available at most financial institutions 
  • Flexible use 
  • Borrowing costs are often higher for startups 
  • Personal guarantee is typically required
  • Low credit score could lead to loan denial or higher interest rates
Line of credit 580
  • Revolving line of credit
  • Interest usually only charged on the money you spend
  • Reusable as you repay
  • Higher rates and fees compared to other types of business loans 
  • Draw period that limits spending timeline 
SBA loan 640
  • Backed by the SBA, increasing chances of approval
  • Lower interest rates
  • Longer repayment periods
  • Several loan options
  • Not generally available to business owners with poor credit
  • Complex application process
  • Lengthy loan approval and funding timelines 
Invoice factoring 500
  • Lets you sell outstanding invoices
  • Fast funding times
  • Steep fees 
  • Advances generally limited to 85 percent of the invoice amount

Calculate how much debt you can afford

When you apply for an LLC loan, you’ll need to provide the lender with the amount you wish to borrow and the reason you need the funds. Use a business loan calculator to come up with a loan amount that doesn’t create cash flow issues in your company. 

You’ll enter the loan amount, repayment period and annual percentage rate (or the interest and fees) to generate a monthly payment amount and the total interest you can expect to pay over the loan term. 

For example, if you take out a 3-year, $10,000 small business loan with an APR of 6 percent, you’ll pay $304.22 per month and $951.90 in interest over the life of the loan. 

Be sure to tweak the numbers until you find a feasible monthly payment. That way, you’ll know what to expect when shopping for LLC loans. You can also refer to this calculator as you explore lenders and funding opportunities. 

Compare lenders

Once you know how much you can afford to borrow, the next step is to start researching lenders. Explore what banks, credit unions and online lenders have to offer. Keep lending criteria, business loan interest rates, fees, and loan terms in mind when comparing your options. Also, consider approval and funding timelines if you need the loan proceeds sooner than later. 

It’s equally important to run the numbers to find the best deal on financing. You may find that the lender offering the lowest interest rate isn’t necessarily the cheapest option if they charge a steep origination fee. And if you plan to pay the loan off early, a prepayment penalty tucked away in the fine print could send your borrowing costs soaring. 

Gather necessary documents

Now that you’re ready to apply, it’s best to gather the required business loan documents the lender will want to see. Here’s a general idea of what you’ll need: 

  • Personal information. Name, addresses, resume, income sources and contact information for both you and the company’s co-owners
  • Company information. Company’s name and address, tax-ID or EIN number
  • Company financials. Two years of balance sheets, profit and loss statements, cash flow projections, income tax returns and business bank statements 
  • Legal documents. Articles of incorporation, business license and proof of business insurance (if applicable)
  • Business plan. A document detailing how you intend to use the funds and the financial benefit they’ll provide to your company

Some lenders may request additional documents. And if you’re offered a secured loan, you’ll also need to provide information about the collateral. Inquire with the lender to determine what you’ll need in advance to avoid processing delays.

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Bankrate insight

A secured business loan is a financing option that requires you to put up some form of asset, which acts as security for the loan. This asset, also known as collateral, can be taken from you if you fail to repay the loan. Examples of collateral include real estate, business equipment and inventory. You may even be able to use outstanding invoices.

Apply for your LLC loan

Online lenders let you apply online and upload supporting documents to the online dashboard for review. You’ll most likely receive a decision in just minutes or as soon as one business day. 

But a traditional lender could take a few days to a few weeks to hear back, especially if you have to visit a physical location to apply for the loan. The waiting period is often even longer for SBA loans.

Upon approval, the lender will prepare documents for you to review and sign. Once the loan documents are processed, funds will be disbursed to you. The funding timeline varies by the loan product and lender you select. 

What happens if your LLC loan is denied?

If your application is denied, you may not be entirely out of luck. Start by reaching out to the lender to learn why your application was rejected and gain insight on what you can do to improve your approval odds moving forward. 

You may have to look at different types of loans. You may be a strong candidate for a business loan for bad credit, which will likely have higher interest rates. Also, consider alternative lenders. Online lenders and peer-to-peer lenders tend to have less stringent eligibility guidelines. You may even want to try a crowdfunding platform, which involves raising small sums of capital through donations or investments in your company. 

If all else fails, it’s a good idea to take some time to improve your credit health if it’s one of the reasons why you were denied financing. 

Pros and cons of LLC loans

Pros

  • Flexible funds. An LLC loan can be used for just about any business need, from everyday operations and inventory to expanding your business and purchasing inventory.
  • Low interest rates. If you have good credit, you have more options and can secure a business loan with competitive rates.

Cons

  • Application process. Applying for a business loan can take time, research and gathering a lot of documents to support your application. And some lenders like traditional banks can take several days and weeks (or longer) to process your application.
  • Credit risks. If you make late payments or fail to pay your loan back, you could hurt your credit history or default on the loan, which could lead to your business and assets being seized and liquidated. 

Alternatives to LLC loans

If an LLC doesn’t seem like the right fit for your business, consider these business loan alternatives: 

  • Business grants. This is a free funding source that does not have to be repaid. Business grants are also available to businesses that fall into a specific category, like minority-owned or women-owned companies. 
  • Personal loans. They’re easily accessible compared to traditional business loans. But the borrowing costs may be steeper, and some lenders impose restrictions prohibiting the funds from being used for business expenditures.
  • Business credit cards. They operate like traditional credit cards and allow you to re-use the funds, up to the credit limit, as you make payments. Look for options that offer promotional interest-free periods and rewards programs. 
  • Home equity loans. You can borrow against the equity in your home to help fund your LLC. Be mindful that it acts as a second mortgage, so you could lose your home if you fall behind on the loan payments. 
  • Loans from friends and family. An interest-free or low-interest loan from a relative or friend is another option to keep in mind. Get the agreement in writing to ensure both parties are on the same page. It’s equally important to only agree to terms that work for your company’s finances to preserve the relationship.

Bottom line

If you’re an LLC small business owner in need of financing, an LLC loan is a good place to start. Depending on your credit score and overall business health, you may have no trouble getting approved. But if you’re a startup or have a poor credit history, you should plan ahead. 

To find the right LLC loan for you, follow the above steps: Check your credit, make sure you know the right type of loan for you, know how much of a loan you can afford and compare lenders. Following these steps will help make the application process much easier and ensure you’ve done everything possible to get approved for the loan you want.

Frequently asked questions

  • Not necessarily. If you operate as a sole proprietor, you could also be eligible for a business loan. But your options may be limited to online lenders and private lenders, as most traditional banks and credit unions are often hesitant to lend to sole proprietors. 

  • If you have good credit and can meet the lender’s eligibility guidelines, getting a business loan with an LLC can often be easy. But new businesses and businesses with limited revenue may have difficulty getting approved, especially with traditional banks and credit unions. You may have to seek financing with an alternative lender, which could come with higher interest rates and strict repayment terms.

  • It depends on the type of LLC loan you select. Some LLC business loans are installment loans disbursed in a lump sum and payable over a set period. Others are revolving lines of credit that operate like credit cards and can be used on an as-needed basis.