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Top 5 Business Loan Options for LLCs in 2022

By: Matthew Gillman

If you’re running a limited liability company (LLC), you may find you need to raise money or get a small business loan to start up or fuel growth. Many small business fail in their early years simply because they ran out of cash, or they weren’t able to plan their finances well.

This is where a business loan comes in: you could use more capital to fund your LLC’s expansion, get more manpower, and purchase equipment or hardware. You could also use the money to pay down debts or have for emergencies.

Below are the different business loan options you should consider for your LLC.

Photo of doors, meaning the loan options
5 Best Business Loan Options for LLCs

  1. Bank loans
    • Traditional lenders like banks and credit unions offer the most ideal loan amounts, terms and interest rates, which is why many business owners apply from them.
    • However, your business must meet their strict qualification requirements, such as high credit scores and longer time in business. The reason for this is that banks need to minimize their risk of loan payment defaults. And they have a good reason for it.
    • During an economic downturn, smaller companies are riskier to invest in than their larger counterparts due to a number of reasons such as lack of credit history or increased regulation. This makes it difficult for many LLCs and startup businesses to obtain a loan from banks.
  2. Term loans
    • Business term loan is a type of traditional business financing where you repay your lender over a specified period. This ranges anytime between a few months to ten years, depending on the stability, structure and credit standing of your LLC.
    • In some instances, lenders may require you to put up collateral to secure lower interest rates or higher loan amounts. Collateral provides security for the lender so you have to be willing to risk your assets to get a term loan.
  3. Business line of credit
    • A business line of credit is one of the most ideal types of alternative financing, simply because you are given access to capital on an as-needed basis. With a line of credit, you are not required to use the full amount granted to you; instead, you can draw money from your account whenever you need cash and pay it back with interest.
    • What’s great about a line of credit is you don’t have to pay a fixed amount of loan repayments or interests if you didn’t use the money. It’s also a revolving credit, so you can just repay what you’ve used and withdraw the funds again in the future.
  4. SBA loans
    • SBA loans are those that come from private lenders and banking institutions but are backed by the Small Business Administration. The terms usually range anywhere between 10 to 25 years, with interest rates that are favorable to small businesses and startups.
    • There are different types of SBA loans: SBA 7(a) loans, 504 loans, disaster loans, microloans, and express loans. The most popular is the 7(a) loan, which gives you up to $750,000 worth of loan amount plus a partial guarantee from the SBA. To give you an idea, the SBA guarantees 85% of the loan up to $150,000 and 75% if the loan amount is more than $150,000.
    • SBA loans may be used for short- and long-term working capital for office repairs, debt refinancing, or purchase of new equipment. Note that the qualification requirements to get an SBA 7(a) loan includes a tangible net worth between $2.5 million and $7 million, plus a good personal credit score and strong business cash flow statement.
  5. Invoice financing
    • Last but not the least is invoice financing, which allows you to use unpaid invoices as collateral in exchange for upfront capital. With this type of financing, lenders will give you 80% to 95% of the total value of your invoice. You will receive the remaining 5% to 20% of the invoice value (minus service charges and transaction fees) once your customers pay.
    • Invoice financing is a preferred option by many businesses because it frees up the cash tied to their outstanding invoices. It’s also easy to have your application approved, since lenders would not require you to have a good credit rating. What’s more important to your lender is your customers’ creditworthiness.
    • This is a good financing option for companies in the B2B space. Lenders are happy to accommodate invoice financing applications from business in the transportation, logistics, wholesale, manufacturing and technology industries, but all types of LLCs will benefit as well.

More capital means more room for growth

Ensuring that the business has sufficient funds and maintains positive cash flow will almost always guarantee its success. Financing helps bring in more stability to the LLC, since company owners have capital to make strategic growth decisions.

If you’re not sure where to start, talk to a finance expert and ask about your options. Ideally, find someone who’s already familiar with your industry to increase your chances of getting loan approvals.

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Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.

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