How to Compare LLC Loans

Woman talks on the phone while looking at her laptop screen.Phiromya Intawongpan/Getty Images

Key takeaways

  • LLCs can qualify for most business loans, but the exact type you choose affects rates, terms and loan amounts
  • If you have business assets, you can get a secured LLC loan at potentially lower interest rates
  • To compare LLC loans, consider the requirements to apply, types of interest and fees charged and timing to fund

A limited liability company (LLC) is a business structure that gives owners some protection against being held personally liable for company debts and obligations.

LLCs account for 32 percent of small businesses, more popular than corporations (15 percent) and sole proprietorships (9 percent), according to the National Small Business Association’s 2023 Economic Report. The LLC structure only gets edged out by S-corporations, which make up 34 percent of small businesses.

As with any small business, LLC business owners often need capital to keep operations afloat or expand. But the exact loan you choose can depend on your resources, whether you need flexible or fast access to cash or the timeline you need to repay the loan. The best LLC loans will help you get the lowest rates and best terms possible to match your needs. Avant vs. Earnest: Which Is Best For You?

How to compare LLC business loans

To compare the right LLC loan for you, you’ll need to consider the following factors.

Type of LLC loan

There are many types of LLC business loans. The most common include:

  • Term loan. Business term loans let you borrow a lump sum of cash that you repay in monthly installments with interest. Short-term loans typically offer fast access to cash but come with short repayment terms of three to 24 months. There are also long-term loans that offer higher amounts of financing and longer repayment terms, typically three to 10 years.
  • Business line of credit. This is a revolving line of credit that works like a credit card. You can withdraw the funds you need up to the credit limit on an as-needed basis.
  • SBA loan. These loans are backed by the U.S. Small Business Administration and come with lower interest rates and competitive terms. But you can expect a challenging application process and slower funding times than you’ll find with other business loans.
  • Equipment loan. These loans are designed specifically to cover the purchase of business equipment, from vehicles and copiers to HVAC systems. Because the equipment you buy serves as collateral, this loan may be an option if you need financing for a new LLC or have bad credit.
  • Invoice factoring. Another option for LLC loans with bad credit or a short time in business, invoice factoring means you trade in your unpaid invoices for cash. You could receive an advance of up to 85 percent of the invoice value. When your invoiced client pays the invoice, it’s collected by the factoring company, which then disburses any remaining funds to you minus fees. Be advised: those fees can be hefty.
  • Merchant cash advance. A merchant cash advance issues you a lump sum that you can repay in one of two ways: either through regular payments or by taking a percentage of your future credit or debit card sales. This financing can help you through a seasonal slump or emergency expense as an alternative loan for LLC owners. These advances usually come with plenty of interest and high fees, so they’re best used as a last resort.

LLC loan amount

You also need to consider the loan amount you need to borrow to fund business growth — and the amounts you can reasonably qualify for. Those amounts differ considerably by the type of loan and your business’s overall financial picture. You may qualify for more with secured loans like equipment loans or loans guaranteed by future revenue like merchant cash advances. How To Manage A Business Loan

Loan type Typical loan amount range
Short-term loan $10,000 to $500,000
Medium and long-term loans $10,000 to $1 million
Banks may not have a maximum
Business line of credit $1,000 to $250,000
SBA loan SBA microloan: Up to $50,000
SBA Express loan: Up to $500,000
SBA 7(a) loan: Up to $5 million
Equipment loan $10,000 to $1 million
Invoice factoring Up to $10 million, depending on unpaid invoice amounts
Merchant cash advances $5,000 to $2 million

Minimum requirements to qualify

There are many business loan requirements to watch out for when comparing small business LLC loans. Most lenders have a minimum credit score, time in business and annual revenue requirements. Some also evaluate current debts, obligations and business credit scores to determine if your company qualifies for funding.

Generally, traditional banks’ term loans and lines of credit have the strictest qualifications. SBA loans are a bit more accessible since you can get approved with a credit score as low as 640 despite the complex application process. But if you need a business loan with minimal requirements, online lenders tend to be more lenient.

Interest rates and fees

Interest rates on LLC loans vary by the lender and loan type. Low-interest loans are typically reserved for small business owners with at least a strong personal credit of 670 and two years in business.

If the interest rates offered with an unsecured business loan seem high, a secured business loan may offer better rates. But you’ll have to sign over some form of asset that acts as collateral in case you don’t pay the loan back. If you don’t have the best credit, you can get a bad credit LLC loan. But expect higher interest rates to compensate for the lender’s extra risk of lending to your business.

As you compare LLC business loans, borrowers will get either a fixed rate that remains the same during the loan term or a variable rate that fluctuates over time. Lenders have a few ways of showing the cost of borrowing.

  • Annual percentage rate (APR). The APR shows you the total cost of borrowing  — both the business loan interest rate and fees.
  • Annual interest rate (AIR). The AIR shows you the interest you’ll pay each year on the loan but doesn’t account for fees.
  • Factor rate. Typically found with alternative loans like merchant cash advances or online lenders, the factor rate is a decimal figure representing the total borrowing costs.

There are also additional fees that come with business loans. The most common to watch out for when comparing LLC loans include:

  • Origination fee. It is an upfront expense that covers loan processing and underwriting costs associated with reviewing the application to make a lending decision.
  • SBA guarantee fee. The Small Business Administration charges a guarantee fee on the loans it backs through SBA-approved lenders. That fee may cost between 0.25 percent to 3.75 percent of the part of the loan it guarantees.
  • Late payment fee. Expect a late payment fee if you make a payment after the due date or grace period offered by the lender.
  • Early repayment fee. This is a prepayment penalty a lender may charge for paying off business loans early.
  • Servicing fee. This fee is sometimes charged by lenders to cover administration-related costs.

Repayment terms

The repayment period for business loans varies depending on the lender and type of loan. More extended repayment periods generally mean you’ll get a more affordable monthly payment, though you’ll pay more interest since the lender has more time to collect from you.

LLC loan type Repayment term
Term loans Up to 10 years
Business lines of credit Up to 5 years
SBA loans Up to 25 years
Equipment loans Up to 10 years
Invoice factoring Varies by invoice payment term; usually up to 90 days
Merchant cash advances Varies per the advance’s terms; could be a preset repayment plan or one that hinges on your future sales

Funding speed

How soon do you need the funds for your business? A term loan or business line of credit from an online lender is worth considering if it’s soon. But if you can wait a bit, consider applying through a traditional bank or credit union, which may offer a better rate.

On the other hand, SBA loans are known for their slow funding speeds and aren’t ideal for small business owners who need cash immediately. It could take several weeks to get a lending decision, and the funding timelines are just as lengthy. What is an Equipment Loan and How Does It Work?

Pros and cons of LLC loans

LLC business loans have benefits and drawbacks you should consider when deciding if they’re a good fit for your business. To help you decide how business loans compare, here are some pros and cons of LLC loans to consider.

Pros

  • Improved cash flow. You can take out an LLC loan to fill cash flow voids and keep operations running smoothly or to grow your business.
  • Variety of loan choices. LLCs can qualify for most types of business loans, like term loans or lines of credit, and may have the resources to qualify for more favorable terms. Whereas some sole proprietors don’t have enough revenue or other qualifications to get financing.
  • Build business credit. If the lender reports payment activity to the business credit bureaus, your company’s credit health could improve, assuming you make timely loan payments.

Cons

  • Personal guarantees are common. Most lenders require a personal guarantee on small business loans, which means you’ll be personally liable for repaying the loan if your business defaults on the loan agreement — even if you are an LLC.
  • Potentially high rates and fees. While you can get a loan for an LLC with bad credit, your borrowing costs will be significantly higher.
  • Not all loan information is disclosed. Unlike consumer lending, business lenders aren’t required by the Truth in Lending Act to show annual percentage rates (APRs) or other major fees. You’ll need to read the loan agreement thoroughly and ask questions if you don’t understand part of it before signing.

How to get a business loan with an LLC

Once you understand how to compare LLC business loans, chances are you’re ready to apply for funding. Take these steps to give yourself the best chance at getting a business loan with an LLC.

  • Check your credit score. Lenders may look at your business and personal credit scores and credit reports. You’ll generally need good or excellent credit to apply for a term loan or business line of credit. If you choose an online lender, you could get approved with a lower credit score, as the guidelines tend to be more lenient.
  • Run the numbers. Use a business loan calculator to determine how much loan you can afford. If your credit score is low, the interest rate will likely be higher and drive up the monthly payment.
  • Compare lenders. You can find an LLC loan at traditional banks, credit unions and online lenders. Compare interest rates, fees, loan terms and funding timelines. Ideally, you want to select the lender offering the best deal on financing.
  • Gather documentation. From personal information to a business plan, there are a number of documents needed to apply for an LLC business loan.
  • Apply for an LLC loan. Most lenders offer online applications, but you may have to visit a physical location if you’re applying with a bank or credit union. Online lenders offer decisions in minutes or hours. You’ll likely have to wait longer if you apply with a traditional lender.

If approved, review the loan agreement carefully before you sign on the dotted line. The lender will then close the loan and disburse the proceeds to you. How to choose the best business line of credit

Bottom line

You should see how various business loans compare to find the best small business LLC loan for your business. By evaluating the loan amounts, eligibility guidelines, interest rates, fees, loan terms and funding speed, you can make the right decision for your company.

Frequently asked questions

Can you get a business loan with a new LLC?

It’s possible to get business loans for new LLC companies. But your options may be limited. Most lenders require you to meet a minimum time in business requirement unless you have other compensating factors, like a higher credit score, to minimize the risks they’ll incur by lending to you. Today, many online lenders will offer you financing if you’ve been in business for at least six months.

Can you get an SBA loan with an LLC?

Yes, you can get an SBA loan with an LLC assuming you meet all the eligibility requirements. You’ll also need to provide a personal guarantee that makes you liable for the loan if your company cannot repay what’s borrowed.

Is it better to get a business loan from a bank or credit union?

It depends on which financial institution offers the most attractive terms. Credit unions are known for offering better rates and lower fees than traditional banks, but loan amounts tend to be smaller.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top