Key takeaways

  • LLC loans can be used for a variety of business purposes, including inventory and equipment purchases
  • Business owners should consider the business’s needs to determine which type of LLC loan is best
  • Depending on the type of loan, businesses could potentially borrow up to $5 million

An LLC may be a unique type of business structure that shields a business owner from their company’s liabilities, but these types of businesses have just as much access to business loans as corporations.

Whether it’s an LLC business loan or a regular business loan, it can help you pay for business supplies, payroll, equipment, real estate and more.

Below we’ll cover ways to use LLC loans.

6 ways to use an LLC loan

There are many ways a business loan can supply funding for your LLC.

1. Stocking up on inventory

To keep your business running smoothly at high-demand times, you might use the business loan to make sure your inventory is stocked. If you have a business line of credit, they’re excellent for small, short-term expenses like these. Or you can turn higher cost but easier to access options like invoice factoring and financing or merchant cash advances.

If you sell a type of inventory you can keep for a while, you might use a larger business loan amount to buy long-term inventory upfront.

2. Equipment or technology purchases

One popular use for an LLC business loan is to purchase heavy equipment or specialized technology. Someone might put in a new point-of-sale system, expand a fleet of commercial vehicles or purchase new manufacturing equipment to expand operations.

Equipment loans, which cover large one-time purchases, are designed for such expenses. The lender will need to approve the equipment you are buying. The equipment itself secures the loan, which can mean a lower interest rate.

3. Real estate purchases

If you’re looking to open a brick-and-mortar location or looking to expand, term business loans can be used for purchasing real estate. SBA 504 loans and other commercial real estate loans are also popular options, as these are specifically designed for the purchase or construction of existing buildings or land. However, be aware that 504 loans cannot be used for speculation or investment in rental real estate.

4. Marketing costs

You might also use the LLC loan on marketing costs, like advertising placement, customer surveys, agency fees, ad development, freebies to customers, social media professional fees and other costs. A business line of credit might be good for this use since you only pay interest on what you use.

5. Startups

Some people access business loans to get their business idea off the ground. This can be trickier since many lenders require a certain time in business and annual revenue requirements. However, some lenders work with startups. Alternatively, microloans might be easier to secure.

6. Regular expenses

You can use your LLC business loan on daily expenses, like utility bills. People might also use business lines of credit or other working capital loans to pay ongoing expenses like payroll. But borrowing money isn’t free, so it’s not a good long-term solution. If you frequently must take on debt to cover expected business expenses, you may have bigger cash-flow problems than a loan can address.

What’s the right kind of LLC loan for your needs?

Different loans can make sense for different purposes when you’re deciding how to fund an LLC. The list above is not exhaustive, so we’ve made a chart of what type of LLC loan can be used for which purposes.

 

Loan type Amount Uses
Term loan $5,000 to $5 million Larger expenses, like real estate or equipment, or working capital
Microloans $1,000 to $50,000 Small purchases and startup costs
Business line of credit $1,000 to $250,000 Typically smaller day-to-day expenses, like supplies, payroll and short-term inventory
SBA loan Up to $5 million Flexible uses depending on type: working capital, refinance current debt, supply purchase, real estate, improvements, general expansion
Commercial real estate loans Up to $5 million Designed to aid in purchasing or developing real estate for business uses
Invoice factoring and financing Amount of invoice minus a fee of 1% to 5% Smaller day-to-day cash flow: supplies, inventory, payroll, etc.
Merchant cash advance Advanced future sales minus factor rate of 1.1 to 1.5 Smaller day-to-day cash flow: supplies, inventory, payroll, etc.

The bottom line

No matter your business’s need, there’s likely an LLC loan designed to fit it.

Some loan types are best for day-to-day cash flow or small expenses, like business lines of credit, invoice factoring and financing and merchant cash advances. Term loans and SBA loans tend to be used for larger expenses. Some loans you’d use for a specific purpose, like commercial real estate loans.

If your LLC needs money, look at our guide on how to get an LLC loan.

Frequently asked questions

  • LLC business loans that require a personal guarantee can potentially impact your credit score, especially if the business defaults on the loan. Additionally, if a lender reports your account and payment history to other business or personal credit bureaus, your credit can be positively or negatively impacted.
  • Yes, you can get a business loan with an LLC.
  • No, you can not use a business loan for personal debt. Business loans have stricter usage requirements than personal loans. To pay off personal debt, you’ll need to look at personal loans or other funding options.