What can you use an LLC loan for?
The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
If you’re looking for how to fund an LLC, you’ll want to check out small business loans. LLC loans are not their own special loan type — most business loans are available to LLCs.
Business loans can help you pay for business supplies, payroll, equipment, real estate and more. Below we’ll cover ways to use LLC loans. Make sure to seek the best LLC loan to keep your borrowing costs loan.
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 business loans 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 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 loan on marketing costs, like paying for 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.
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 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.
|Term loan||$5,000-$5 million||Larger expenses, like real estate or equipment; or working capital|
|Microloans||$1,000-$50,000||Small purchases and startup costs|
|Business line of credit||$1,000-$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%-5%||Smaller day-to-day cash flow: supplies, inventory, payroll, etc.|
|Merchant cash advance||Advanced future sales minus factor rate of 1.1-1.5||Smaller cash flow uses: inventory, supplies, 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 business needs money, take a look at our guide to how to get an LLC loan.