Getting a Business Loan as an LLC

Getting a Business Loan as an LLC
Getting a Business Loan as an LLC

Running a business is a balancing act of sorts. You’re constantly managing your day-to-day operations while trying to sustainably scale the business. Scaling has a different meaning for different companies and industries.

Some niches allow you to grow organically, using nothing more than your own capital. However, in most cases, you’ll need to turn to outside funding to achieve your short and long term goals. One of the most effective ways to raise funds for an LLC is to get a business loan.

Why get a Business Loan?

Growth and expansion are arguably the most common reasons to seek a business loan. Opportunities rarely come at a good time. More often than not, they appear when you least expect them. Jumping on those opportunities is essential for scaling your business.

A business loan can annul the bad timing of any opportunity by providing you with the necessary funds. Business loans can also be used to fund organic growth. There are instances when it’s cheaper to get a loan to cover your running expenses than it is to use your own funds.

Large Investments

Staying competitive in saturated markets usually comes down to nuances. If you’re going head to head against strong players in your industry, you’ll need all the help you can get. One way to gain a competitive edge is to invest in modern equipment.

Making such large investments has positive long term effects and will usually reduce your expenses in the long run.

Building a Good Credit Score

Funding growth and new equipment are just two of the more popular reasons to get a business loan. Many LLC and other companies take business loans to build a solid credit score. Then, when the time comes to apply for a large loan, you’ll have a track record of perfectly serviced loans in the past. This strategy has been around for a while and is proven effective.

Types of LLC Loans

An LLC can apply for a number of different types of loans. Each of these has its pros and cons and is meant to cover specific business needs.

Startup Loans

Startup loans are a great way to fund your business in its early stage. Starting a new business can be challenging, especially if you’re spread out thin. The good thing about startup loans is that they usually solve one of the largest problems new businesses have – the lack of an established credit score.

Depending on the lender, you can find startup loans that require extremely low credit scores, while still offering decent interest rates.

LLC Bank Loans

Next up are the LLC bank loans. This is the most popular type of LLC loan in the financial market. What defines bank loans is a fairly low-interest rate that usually ranges between 5-10% and a diverse loan range. However, this isn’t a type of loan that would be issued to startups.

Bank loans are usually reserved for established companies that have a decent credit score and a track record of previous loans.

Other Types of LLC Loans

Startup and LLC bank loans are the most common types of loan products, but not the only ones. There is a whole range of short term loans an LLC can take to cover their day-to-day needs. Things such as cash advance loans or similar are often considered alternative financing rather than loans, but they match the criteria.

Choosing the Right Lender

Selecting the type of loan is only a part of the equation. You also have to find the right lender. Going to the largest bank in your area might seem like the right thing to do, but that’s not always the case. When you turn to a large bank for a loan, they will generally treat your business as a number in a spreadsheet, especially if you’re running a small LLC.

Instead, you will probably find better terms in a smaller bank. Establishing a good relationship with your banker is an important part of doing business. You’ll find that smaller financial institutions are much keener on treating you with the respect and attention you deserve.

Bank vs Individuals

Banks and other similar organizations aren’t the only sources of financing. If permitted by the articles of incorporation, your LLC can seek loans from individuals such as your friends and family. In fact, taking out loans from individuals is often a much better choice. For one, these loans require much less paperwork compared to conventional bank loans. Additionally, there’s no formal application process to deal with.

That being said, taking loans from individuals requires a certain amount of trust from both parties.

How to Apply for a Loan

Speaking of loan applications, applying for an LLC business loan can be a tedious process. Just how much energy and effort you’ll have to put into applying will depend on the lender you’ve chosen to work with.

Some banks and larger financial institutions are known to require a great deal of information about your business in order to consider you for a loan. Others have simplified applications that are often based on core parameters such as your credit score.

Finding a lender that doesn’t have a complicated application process can help your business in its early stages of growth. Having your loan application in limbo when you need to make business decisions can cause all kinds of problems.

Be Smart with Borrowing

Most successful LLC has had at least one round of funding through various business loans. However, the convenience of business loans doesn’t mean that you don’t have to be smart about how you borrow money.

Pacing is a major part of raising funds for a business. Knowing when to apply for a loan comes down to your knowing your business and your ability to anticipate future trends. It’s too easy to try and finance your way out of situations that are just barely uncomfortable.

Being smart with your money, both borrowed and owned is a major precursor to any kind of success. This applies to both business finances and personal finances alike. We hope that this short guide has shed some light on LLC business loans and how they work.

Getting a Business Loan as an LLC

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