How to Get a Business Loan With an LLC

Posted at 15:49h in Small Business Financing by Pretha Yasmin

You do not necessarily need an LLC (limited liability corporation) to get a small business loan or other types of funding as the lender will look at financial history, current assets, market potential, and even your business plan if you have an idea for a start-up. So don’t worry if you’re a sole proprietor or budding entrepreneur. You can still apply and get approved for SBA 7a loans, inventory and equipment financing, and other types of business loans.

There are, however, benefits that may help you get approved when applying for a business loan when you have an LLC. And, as a lender, that’s what we cover in this article.

Why You’ll Want an LLC When Applying for a Business Loan

The reasons you’ll want an LLC when applying for a business loan include:

You will get an EIN number in the process, which allows lenders to easily look up financial history.

The lender will be able to easily verify your identity.

Your personal assets will be more protected in the event you default on the business loan.

Your EIN and the Business Loan Process

When you file an LLC, you get an EIN (employer identification number), which is what the IRS uses to identify your business for tax purposes. Business lenders typically require a borrower to have an EIN because the EIN allows the lender to:

See the financial history and responsibility of the company.

Check a borrower’s credit history and business credit score.

Confirm the borrower is operating separately from a privately owned business with personal assets.

The lender being able to verify your risk levels (like how much revenue your business has, your business credit score, and your debts) via your financial history makes it safer for them to lend you money. In addition to the EIN numbers, your LLC makes it easier to apply and get approved for a business loan, because the lender can validate who you claim to be by comparing the information you provide with state records.

Personal Asset Protection from Business Loan Defaults

Outside of the ease of verifying your identity, LLCs offer protection for business owners, helping them avoid the loss of their personal assets if the business gets sued or defaults on a business loan. So, there are advantages to you as a borrower when you form your LLC before applying.

If you take a $250,000 loan to purchase equipment and expand, but the new venture doesn’t take off for you, not having an LLC could result in the lender pursuing your house, your personal savings, and other assets if they aren’t able to recover the principal from your company’s business assets.

You don’t need to have an LLC to get a business loan. Non-profit organizations, sole proprietors, and entrepreneurs just starting out can all access funding without one. But having an LLC makes it easier to get approved because the lender can more easily confirm your identity and track your financial history, so having one can work to your advantage.