Can an LLC Get a Loan? Requirements, SBA Options, and Timeline

Yes, an LLC can get a loan. Because a limited liability company is a separate legal entity, it can borrow in its own name, sign the note, and pledge business assets as collateral. In practice, though, lenders will look past the entity itself and evaluate the owners’ personal credit and finances too, and most will ask at least one member to personally guarantee the debt. The rest depends on how long you’ve been in business, how strong your cash flow is, and which type of loan you’re going after.

What Lenders Require to Approve an LLC

Every lender sets its own bar, but four things come up almost every time: time in business, good standing with the state, credit, and cash flow.

Two years of operating history is a common benchmark for traditional bank and SBA financing. The SBA itself acknowledges that many small-business borrowers can’t meet conventional credit or cash flow requirements, which is part of why its guarantee programs exist.

Your LLC also has to be in good standing where it was formed. That means annual or biennial reports filed on time and franchise taxes paid. Fall behind and the state can administratively dissolve or forfeit the entity. Lenders typically ask for a Certificate of Good Standing (sometimes called a Certificate of Existence) from the Secretary of State to confirm you’re active and authorized to do business.

Credit gets pulled on two levels. On the business side, lenders look at the Dun & Bradstreet PAYDEX score, which rates payment history from 1 to 100, and the FICO Small Business Scoring Service (SBSS), which rates overall credit risk from 0 to 300. Some SBA lenders use a minimum SBSS score as a threshold. On the personal side, any member with a significant ownership stake should expect a personal credit pull.

Cash flow matters just as much. Lenders calculate a debt service coverage ratio, or DSCR — net operating income divided by total debt payments — to confirm the business earns enough to cover both current debt and the new loan. A DSCR of 1.25 or higher is a common floor, meaning $1.25 of income for every $1.00 of debt service.

Why You’ll Probably Sign a Personal Guarantee

Most lenders require at least one member to sign a personal guarantee before funding a loan. It’s a legal promise that if the LLC can’t pay, you will, out of your own assets. For SBA loans, every owner of 20% or more is generally required to guarantee.

Two types exist, and the difference matters:

  • An unlimited personal guarantee pledges all your personal assets with no cap. If the LLC defaults, the lender can pursue your bank accounts, real estate, investment portfolios, and other property for the full unpaid balance plus interest and fees.
  • A limited personal guarantee caps your exposure at a set dollar amount or percentage of the loan. The lender cannot collect more than that cap from you, even if the balance is higher.

Signing either one effectively waives the limited liability protection your LLC gives you, at least for that particular debt. If the business defaults and you’ve guaranteed the loan, the lender can sue you personally, place liens on your property, or garnish your accounts. Knowing which type of guarantee is in front of you is one of the more important parts of the borrowing process.

Collateral and What a UCC-1 Filing Means

Many business loans are secured. When a lender takes a security interest in broad categories of your LLC’s property (accounts receivable, inventory, equipment) rather than a single item, that’s a blanket lien. The lender perfects the interest by filing a UCC-1 financing statement with the state, which puts other creditors on notice that those assets are pledged.

A UCC-1 stays on record for five years and can be renewed. Filing fees vary by state, generally between $10 and $100. If your LLC defaults, the secured lender has priority over unsecured creditors when collecting from the pledged assets. Watch this before taking a second loan: an existing blanket lien makes it harder to borrow again, since the next lender’s claim on your assets would sit behind the first.

Documents to Have Ready

Lenders verify two things: who your LLC is and how it performs. Gather these early. Delays in producing them are one of the most common reasons applications stall.

For entity verification:

For financial verification:

  • Balance sheets and profit-and-loss statements, typically for the last two to three fiscal years plus year-to-date interim reports.
  • Federal income tax returns for the same period.
  • Personal financial statements for any member owning 20% or more. The SBA uses its own Form 413.3U.S. Small Business Administration. SBA Form 413 – Personal Financial Statement

Accuracy matters. Lenders cross-check what you submit against credit bureau reports and bank records, and inconsistencies can sink an otherwise strong file.

Loan Options Available to an LLC

SBA 7(a) Loans

The 7(a) is the SBA’s flagship program. Maximum loan amount is $5 million, and proceeds can go toward working capital, equipment, debt refinancing, or real estate.4U.S. Small Business Administration. 7(a) Loans Real estate loans can run up to 25 years; equipment and working capital terms are shorter. Rates are a base rate plus a spread that varies by loan size.

SBA 504 Loans

The 504 program funds long-term, fixed-rate purchases of major fixed assets: land, buildings, long-lived machinery. Maximum loan is $5.5 million with 10-, 20-, or 25-year terms. Working capital and inventory don’t qualify. To be eligible, your business must have tangible net worth below $20 million and average net income below $6.5 million (after federal taxes) over the two years before applying.5U.S. Small Business Administration. 504 Loans

SBA Microloans

For smaller needs, SBA microloans go up to $50,000, with an average around $13,000. They come from nonprofit intermediary lenders, carry maximum repayment terms of seven years, and generally price at 8% to 13%.6U.S. Small Business Administration. Microloans Proceeds can’t be used to pay existing debts or buy real estate, but they work for startup costs, inventory, supplies, and equipment. Each intermediary sets its own credit requirements; collateral and a personal guarantee are typical.

Traditional Term Loans

A conventional bank or credit union term loan gives you a lump sum repaid on a fixed schedule over a set number of years, at a fixed or variable rate. These fit one-time investments: buying a building, renovating space, funding a defined project. Qualifying usually takes strong credit, solid financials, and at least two years of history.

Business Lines of Credit

A line of credit works more like a credit card. Your LLC gets access to a pool of funds up to a preset limit and draws as needed, paying interest only on what’s drawn. Repaid amounts become available again. It’s useful for uneven cash flow, payroll gaps, or unexpected expenses.

Equipment Financing

Equipment loans use the machinery, vehicle, or technology itself as collateral. That built-in security makes qualifying easier than for unsecured loans. Down payments typically run 10% to 20% of the purchase price. The lender holds a lien until you pay it off, and can repossess and sell the equipment on default.

Merchant Cash Advances

A merchant cash advance isn’t technically a loan; it’s a sale of future revenue. The provider fronts a lump sum and collects by taking a percentage of daily or weekly card sales until the advance plus fees is paid. Factor rates typically run 1.2 to 1.5, meaning a $100,000 advance at 1.4 costs $140,000 to repay. The effective annual cost can far exceed a conventional loan, which is why most businesses treat MCAs as a last resort.

If Your LLC Is Brand New

Less than two years old? Traditional banks and SBA 7(a) loans get harder to reach. A few alternatives:

  • SBA microloans, since the intermediary lenders are oriented toward startups and use more flexible underwriting.6U.S. Small Business Administration. Microloans
  • Online and fintech lenders, some of which will work with as little as six months of operating history at higher rates.
  • Equipment financing, where the asset itself carries most of the underwriting weight.
  • A personal loan used for business purposes. It relies entirely on your personal credit and puts your assets on the line, but it sidesteps the business-history requirement.

Whichever route you take, start a business credit profile early so you qualify for better terms later. Registering a free D-U-N-S Number with Dun & Bradstreet is the foundational step; it’s the identifier lenders and business partners use to look you up.7Dun & Bradstreet. How to Establish and Seek to Build Business Credit

Covenants and Tax Points That Come With the Loan

Approval isn’t the end. Most business loan agreements include covenants — ongoing rules that, if broken, can trigger default even while you’re current on payments.

Affirmative covenants require you to do things: maintain a minimum DSCR, carry adequate insurance, send updated financials on a regular schedule. Negative covenants restrict what you can do without lender consent. Common ones include limits on additional debt above a set threshold, caps on how much profit members can distribute to themselves, and restrictions on selling significant business assets, especially collateral. Read every covenant before signing. If your operating model depends on flexibility, like large quarterly distributions, negotiate upfront.

On taxes: interest your LLC pays on a business loan is generally deductible, but Section 163(j) caps the deduction at business interest income plus 30% of adjusted taxable income (ATI) for the year.8Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense Interest above the cap carries forward. For tax years beginning after December 31, 2024, the One, Big, Beautiful Bill amended 163(j) to let taxpayers add back depreciation, amortization, and depletion when calculating ATI, which effectively raises the deductible amount for most LLCs.9Internal Revenue Service. IRS Updates Frequently Asked Questions on Changes to the Limitation on the Deduction for Business Interest Expense

Debt also affects each member’s tax basis in the LLC. Recourse debt, where at least one member bears the economic risk of loss (typically through a personal guarantee), increases that member’s basis by their share of the liability. Higher basis lets the member deduct more losses and take more tax-free distributions. Nonrecourse debt, where no member bears personal risk, is allocated among members according to profit-sharing ratios.10eCFR. 26 CFR 1.752-2 – Partners Share of Recourse Liabilities

Typical Timeline From Application to Funding

After you submit, the lender’s underwriters review your financials, credit, and legal standing. For SBA loans, the lender does its own analysis first and then forwards the package to the SBA for a separate review, which runs roughly 5 to 10 business days for a standard 7(a).11U.S. Small Business Administration. Types of 7(a) Loans Total time from application to closing on a traditional or SBA loan commonly runs 30 to 90 days. Online lenders can move much faster, sometimes within a week.

Approval comes as a commitment letter laying out the final amount, interest rate, repayment schedule, covenants, and closing costs. Origination fees are typically a percentage of the loan. Read the letter carefully, especially for prepayment penalties and covenant terms. At closing, authorized members sign the loan agreement and any security instruments (UCC-1 filing, deed of trust for real estate). Funds usually hit the LLC’s business account by wire or direct deposit within a few business days.