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
Invoice factoring              500 Startups and bad credit

Bank loan: Best for established businesses

Bank loans come from traditional 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

Business term 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 is limited to the draw period, which may pose a significant inconvenience if you need to make purchases over an extended period. Some business lines of credit also come with a variable interest rate, so your monthly payment will likely fluctuate once the draw period ends and you begin making payments toward the principal.

Pros

  • Only pay interest on the amount you borrow
  • Re-use the funds as you repay what you spend

Cons

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

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.

SBA loans are available in three 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.

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

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 for small business owners with a limited credit history or bad credit. But this option comes with factoring fees and other costs that can make this a risky form of lending.

Pros

  • Available to credit-challenged borrowers
  • Streamlined application process and fast funding times

Cons

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

How to choose the best LLC business loan

When evaluating options to find the best LLC business loan, 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 business loan comes down to your company’s funding needs, financial health and what the lender is offering. Consider what each option offers, 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.