Key takeaways

  • LLC loans is an umbrella term used to encompass any type of financing an LLC company takes out
  • There are different LLC types, from bank and term loans to more specialized kinds of financing
  • While you can find LLC loans with bad credit and business loans for new LLC companies, your options get limited with poor credit or a short business history

An LLC loan is a small business loan for a limited liability company (LLC). It can be used in many ways, including to cover inventory, payroll, equipment, supplies and other operating or expansion-related costs.

If you’re looking to get an LLC loan, there are several types to choose from. The right one for you will depend on certain business factors like your credit score, amount of time in business or even how quickly you need funds.

Here’s a look at common types of LLC loans and tips to help you choose the best one for your needs.

Types of LLC loans

      LLC loan type       Minimum credit score         Best for
Bank loan              700 Established businesses
Term loan              580 Long-term investments
Business line of credit              580 Short-term expenses
SBA loan              640 Affordable loans
Equipment loans              575 No collateral
Invoice factoring              500 Startups and bad credit
Merchant cash advances              500 Seasonal cash shortages

Bank loan: Best for established businesses

Of the various different types of LLC loans, these are the most traditional. Bank loans come from established banks and credit unions. They’re generally reserved for business owners with good or excellent credit. Compared to alternative business lenders, they tend to have strict requirements like a minimum of two years in business and annual revenue requirements of at least $100,000.

Despite the stringent lending guidelines, the best banks for small business loans are worth considering as they often come with lower borrowing costs compared to what you’ll find with other lenders. Most bank loans also allow you to repay the amount you borrow over an extended period, making the monthly payments more affordable.

The downside is some banks require you to apply in person for a business loan from a traditional bank, and it could take several days or weeks to receive a lending decision.

Pros

  • Competitive interest rates
  • Extended repayment periods

Cons

  • Not as accessible to borrowers with lower credit scores
  • Slower application decisions and funding timelines

Term loan: Best for long-term investments

Just like there are different LLC types that shape how your company operates, there are different types of LLC term loans. These loans are offered by traditional banks, credit unions and online lenders. Online lenders often feature rapid approvals and funding times, but term loans from banks and credit unions are generally slower to fund.

The business loan requirements are similar to other types of LLC loans. The rate you receive will depend on your creditworthiness and the type of lender you choose. Some lenders also require you to meet a minimum annual revenue threshold that could be on the higher end.

It’s not uncommon for term loans from online lenders to come with slightly higher borrowing costs in exchange for the convenience they offer. These loan products are also accessible to business owners with bad credit but at a higher cost.

Pros

  • Accessible through several types of financial institutions
  • Convenient application process and fast funding times

Cons

  • High revenue requirements with some lenders
  • Steep borrowing costs for credit-challenged business owners

Business line of credit: Best for short-term expenses

A business line of credit is a form of revolving credit. It functions like a business credit card, and the credit limit resets as you repay what you spend. Some lenders also let you make interest-only payments during the draw period, making your monthly payments far more affordable than what you’d get with other types of business loans.

There are some downsides to consider. Spending may be limited to the draw period, which may pose a significant inconvenience if you must make purchases over an extended period. Some business lines of credit rates may be variable, so your monthly payment could fluctuate once the draw period ends and you begin making payments toward the principal.

Pros

  • Only pay interest on the amount you borrow
  • Reuse the funds as you repay what you spend

Cons

  • Variable interest rates make monthly payments unpredictable
  • Draw period limits the spending time frame
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Bankrate insight

Some business lines of credit use factor rates instead of interest rates to determine total cost. Factor rates are typically associated with high-risk loans that are accessible to borrowers with fair or bad credit. To understand the true cost of your loan, make sure you convert a loan with factor rates to interest rates and compare it with other loan options.

SBA loan: Best for affordable loans

SBA loans are insured by the U.S. Small Business Administration. They feature competitive, fixed interest rates and extended terms to make monthly loan payments more affordable. You can take out an SBA loan through an approved lender, which can be found using the SBA Lender Match Tool.

Several different types of LLC loans fall under this umbrella. Specifically, SBA loans are available in four forms:

  • 7(a) loans: Access up to $5 million in working capital through an unsecured or secured loan product.
  • 504 loans: These loans are backed by equipment or commercial real estate and are intended to cover major purchases.
  • Microloans: Capped at $50,000, microloans are designed to help foster expansion and growth in small businesses.
  • Community Advantage loans: This is an SBA pilot program that works to provide business loans for underserved communities.

For some business owners, the disadvantages of SBA loans can outweigh the benefits. These loan products come with an extensive application process. The funding times are also rather lengthy, and it could be several weeks or months before you hear back and get the funds you need for your business.

Pros

  • Attractive financing terms
  • Flexible loan options

Cons

  • Complex application process
  • Slow funding times

Equipment loans: Best for no collateral

If your company needs money specifically to buy a piece of business equipment — whether that’s a new copier for the office or a semi truck — you might want to skip the other types of LLC loans and head straight here.

Equipment loans are self-collateralizing, meaning the equipment you buy is collateral for the loan. That can make them easier to get. And because online lenders offer this kind of loan, you might be able to apply and get your loan funded quickly.

Pros

  • The equipment you purchase secures the loan, which can make it more affordable and easier to qualify for
  • Enables large purchases without taking a big chunk from your cash flow

Cons

  • Interest accrual means you’ll pay more than if you bought equipment outright
  • Depreciation or breakdown of the equipment could mean you pay the loan back past its useful life

Invoice factoring: Best for startups and bad credit

Invoice factoring lets you trade unpaid invoices for cash. You’ll sell them to an invoice factoring company for up to 85 percent or 90 percent of their worth, and the factoring company will become the payee. Upon receipt of payment, the factoring company will send you the remaining amount you’re owed, minus the factoring fees.

The factoring company assesses the client’s creditworthiness to determine if you qualify for financing. This makes invoice factoring an ideal option if you’re looking for LLC loans with bad credit. It can also fill in the gap in business loans for new LLC companies while they wait to build their business history. But this option comes with factoring fees and other costs that can make this a risky form of lending.

Pros

  • Available to business owners with fair or bad credit
  • Streamlined application process and fast funding times

Cons

  • High factoring fees
  • Most advances are capped at 85 percent of the invoice value

Merchant cash advances: Best for seasonal cash shortages

A merchant cash advance (MCA) provides another option when it comes to business loans for new LLC companies. With an MCA, the lender issues you money right away and gets repaid either by drawing from a designated bank account or through your future credit or debit card sales.

Approval rates for MCAs are better than many other types of business loans. So, they tend to be a good option for businesses with bad credit. Be advised, though, that MCAs are a very expensive type of financing. Yes, you get the lump sum now. But as you repay it, heavy interest accrues, and you’ll likely have hefty fees.

Pros

  • Low approval requirements
  • Fast funding

Cons

  • High interest rates and fees
  • Only an option for companies that conduct a meaningful amount of business via credit card sales

Where to get LLC loans

Now that you have a feel for the different types of LLC loans, you’re probably wondering where to get them. Your best bets are:

  • Banks and credit unions: These established institutions usually offer bank loans, term loans, lines of credit and equipment loans. Banks and credit unions typically have the best LLC loan rates. Many also offer SBA loans, so if you’re in the market for that type of financing, research your options.
  • Online lenders: These are alternative lenders that let you apply and get funded through the Internet. They usually have looser eligibility requirements than banks and credit unions, but to make up for that added risk, they generally charge more interest and fees.
  • Community Development Financial Institutions (CFDIs): These are credit unions and banks with a focus on providing financial products to historically marginalized communities. As a result, when you apply for a loan with a CFDI, they may look less at your credit history and more at your overall community impact.
  • Minority Depository Institutions (MDIs): These are similar to CFDIs in that they aim to support traditionally underserved business owners. If a bank or credit union has this federal designation, it means they are either owned or directed by people from minority groups. By the numbers, they originate more SBA loans for minority business owners than non-MDIs.

How to choose the best LLC business loan

When evaluating and comparing LLC business loans, here are some questions to ponder:

  • How much funding do you need?
  • How soon do you need the loan proceeds?
  • Do you meet the lending guidelines?
  • Is the lender you’re considering reputable and licensed to operate in your state?
  • Do they offer competitive interest rates?
  • Are the loan terms reasonable?
  • Can you afford the monthly loan payment?
  • Does the funding speed work for your timeline?
  • Does the lender charge an early repayment fee?

Bottom line

Finding the best LLC loan comes down to your company’s funding needs, financial health and what the lender is offering. Consider what the different types of LLC loans offer, familiarize yourself with the lending guidelines and weigh the pros and cons to determine which is best for your business.

Traditional bank loans and term loans are the preferred choices if you have an established business in good financial health and your credit rating is solid. But if you’re just starting out or have faced financial challenges, you’ll likely have a better chance of getting approved for other types of LLC loans or alternative funding sources like business credit cards.

Frequently asked questions

  • The best business loan depends on your company’s specific needs. Traditional bank loans are often a good choice for people with good or excellent credit. But for fast funding or loans more accessible to business owners with fair or bad credit, online loans and other alternative business financing options can be more appealing.
  • Most banks prefer companies that are up and running for at least two years, but there are online lenders that bring that requirement down to six or more months in business. That said, there are options for startups that don’t quite meet this threshold, but you can expect higher borrowing costs to offset the risk the lender assumes by doing business with you.
  • To borrow money, you’ll need to fill out an application and provide a list of required documents. This usually includes financial documents and a business plan. Most lenders also require a personal guarantee, which means you’ll be personally liable for the loan if your company falls behind on the payments and cannot repay what’s owed.