How to get a business loan with an LLC

Documents you need for a business loan with an LLC

Every lender asks for the business's financials. An LLC adds a short stack that proves the company is real, current and properly authorized to borrow.

If you can't find your EIN letter

The IRS issues an EIN free and immediately online and tells you to print the confirmation letter. If that printout is gone, the IRS lists three ways to confirm the number: an entity transcript, a digital CP575 downloaded from your Business Tax Account if you're eligible, or a Letter 147C requested by calling 800-829-4933, Monday to Friday, 7 a.m. to 7 p.m. local time. Order it before you apply, since a mailed letter takes time.

Make every name match

Lenders check that the legal name on the articles, the EIN letter, the bank account and the application is the same company. "Smith Landscaping LLC" on one and "Smith Lawn Care" on another looks like two businesses. If you operate under a trade name, have the trade name filing ready to show how the two connect.

Step by step: applying for a loan as an LLC

1. Confirm the LLC is in good standing. States can administratively dissolve an LLC that misses an annual report or fee. Fix that first, because a lender can't lend to a company the state doesn't recognize.
2. Run all revenue through the LLC's account. Lenders read deposits. For SBA 7(a) Small loans, for example, SBA requires the lender to review the two most recent months of activity on the primary operating account.
3. Pull the tax returns that match your classification. A single-member LLC hands over the owner's Schedule C; a multi-member LLC hands over Form 1065 and K-1s; an LLC taxed as an S corporation hands over Form 1120-S. Our page on whether it's hard for an LLC to get a loan explains what each one tells the lender.
4. Update the operating agreement. It should list today's members and percentages. If a member left or joined, the lender will spot the mismatch.
5. Decide who will guarantee. On SBA loans, every owner of 20% or more generally signs. Agree on it among members before a lender asks.
6. Work out the payment you can carry. Add the new payment to your existing ones and compare the total with your cash flow, using the method in do lenders look at gross or net revenue.
7. Apply, then compare total cost. Line up offers on total payback, term and guarantee terms, not the monthly payment alone.

For the full checklist beyond the LLC items, see our list of documents needed for a business loan.

How old does an LLC need to be to get a loan?

There are two ages to keep straight: the LLC's, from its formation date, and the business's, from when it started selling. Lenders care about the business, but a young LLC around a young business is where options shrink. Whether forming an LLC resets your history is covered on our LLC loan difficulty page; here is what each stage tends to open up.

• Before the first year: expect lenders to lean on something other than history, such as collateral, the owners' credit, or projections. Equipment financing works here because the machine secures the loan. SBA's 7(a) Small rules let the debt service coverage test run on a historical or projected basis.
• Around 12 months: this is where the cash-flow lenders Quordx works with usually start, because a year of statements shows a full cycle of revenue.
• Two years and up: some banks begin here. SBA 504 also asks less of an older company: for a general-purpose building, the borrower's down payment drops from 15% to 10% once it has operated more than two years.

Worked example: what two years is worth on an SBA 504 loan

Under 13 CFR 120.910, a 504 borrower puts in at least 10% of project cost, at least 15% if it has operated two years or less or the building is limited or single purpose, and at least 20% if both apply. Take a $1,200,000 project for an owner-occupied shop:

The decision rule: if the business is a few months short of the two-year line and the purchase can wait, waiting saves $60,000 of cash on this project. If it can't wait, plan for the higher injection from day one.

Getting a business loan without an LLC

You don't need an LLC or a corporation to get a business loan. Sole proprietors borrow every day, and so do general partnerships. The difference is liability and paperwork, not eligibility.

What changes without an entity: SBA's guide to business structures notes that a sole proprietorship isn't a separate entity and its owner can be held personally liable for business debts. It also warns that "banks are hesitant to lend to sole proprietorships," which in practice means a sole proprietor's personal credit and bank records carry even more of the file (SBA).

What replaces the entity documents:

• Schedule C on your Form 1040, which is where a sole proprietorship's profit or loss is reported.
• A trade name filing if you operate under a name other than your own, so the lender can tie the business name to you.
• Any business license your city, county or state requires.
• An EIN, which is free from the IRS and gives the business its own tax ID for bank accounts and vendor paperwork.
• A dedicated business bank account, which matters even more without an LLC, since nothing else separates business deposits from personal ones.

Should you form an LLC before applying?

If you need money in the next few weeks: and have solid history as a sole proprietor, apply as you are. Forming an LLC mid-application changes the borrower's legal name, and documents drawn in one name have to be redone in the other.

If you're months away from borrowing: form the LLC first, open the account in its name, and let a few months of statements build up before you apply.

If personal liability is the reason: know that the LLC won't remove a personal guarantee on most small business loans. It protects you from other business debts, not the loan you sign for. More on sole proprietor borrowing in can a sole proprietor get a business loan.

Mistakes that slow down an LLC loan

• Depositing customer payments into a personal account. The lender sees less revenue than you earn.
• An operating agreement that doesn't match reality. A former member still listed, or a new one missing, triggers questions and sometimes new signatures.
• A lapsed annual report. The certificate of good standing comes back negative and the file stops.
• Forming a new LLC during underwriting. The borrower changes and the paperwork starts over.
• Assuming the LLC replaces your credit. Expect your personal credit to be reviewed on most small business loans. To build toward borrowing on the company alone, see small business loans with EIN only.

Applying through Quordx as an LLC or a sole proprietor

Quordx is a broker, not a lender. Its application takes about 10 minutes and asks for the business and ownership details the lenders it works with need, so have the documents above in hand. For most of those lenders, an LLC and a sole proprietorship are equally welcome, though some restrict sole proprietors in certain states.

What they do care about: cash-flow lenders generally start around $17,000 a month in revenue and usually 12 months in business. A brand-new LLC below that line should look at equipment financing or an SBA microloan for now. Above it, lenders review the file and make the decision, and most options can be explored without a hard credit pull. If your business is based in Virginia, Connecticut, Missouri or North Dakota, Quordx does not serve it.