What types of small business loans are available to an LLC?

As the owner of an LLC operating a small retail business, I’m planning to expand my operations and need funding to purchase new inventory, renovate the store, and hire additional staff. With a business credit score of 650 and two years of solid financial records showing steady revenue growth, but limited personal assets for collateral, what types of small business loans—specifically tailored to LLCs—are available to me? Are there options like SBA loans, term loans, business lines of credit, or merchant cash advances that prioritize business creditworthiness over personal guarantees? I’m also curious about faster alternatives to traditional bank loans, given the urgency of the expansion timeline.

The following types of small business loans are generally available to Limited Liability Companies (LLCs), subject to qualification criteria:

1. Term Loans:

   • Description: A lump sum borrowed upfront, repaid in fixed installments (principal + interest) over a predetermined term. Common for general business purposes, expansion, major purchases, or refinancing debt.
   • Subtypes: Short-term (1-3 years), Medium-term (3-5 years), Long-term (5+ years). Secured (using collateral like equipment or real estate) or Unsecured (no required collateral, but harder to qualify for and typically have higher rates).

2. Business Lines of Credit:

   • Description: A revolving credit account allowing the borrower to draw funds up to a predetermined limit as needed, repaying only the amount used, plus interest on the outstanding balance. Ideal for managing cash flow, covering short-term expenses, or unforeseen opportunities.
   • Subtypes: Secured (backed by assets like accounts receivable or inventory) or Unsecured.

3. Equipment Financing:

   • Description: Loans specifically funded to purchase business equipment, machinery, vehicles, or technology. The purchased equipment typically serves as the collateral for the loan.

4. Invoice Factoring / Accounts Receivable Financing:

   • Description: Advance payment based on outstanding customer invoices. Factoring involves selling your invoices to a third party (factor) who collects payment and charges a fee. AR Financing uses invoices as collateral for a loan against their value. Improves cash flow by accelerating receivables.

5. Microloans:

   • Description: Small loans (typically under $50,000, often much less, sometimes as low as $500) offered by non-profit lenders, community development financial institutions (CDFIs), and some SBA intermediaries. Often used for startups, very small businesses, or specific purposes like inventory or equipment.

6. SBA-Guaranteed Loans:

   • Description: Loans partially guaranteed by the U.S. Small Business Administration, reducing lender risk and improving access to capital. Key programs include:
     • 7(a) Loan Program: The flagship program, versatile for most business purposes (working capital, equipment, real estate, refinancing). Guarantees vary by loan amount and purpose.
     • 504 Loan Program: For purchasing major fixed assets like real estate or heavy equipment, involving a CDC (Certified Development Company) and a lender. Provides long-term financing with favorable rates and terms.
     • Express Loan Program: Faster approval for smaller amounts for working capital, inventory, or equipment.
     • Microloan Program: Delivered via non-profit intermediaries, targeting small loans and technical assistance.

7. Merchant Cash Advances (MCAs):

   • Description: An advance of cash repaid via a fixed percentage of future credit/debit card sales or, less commonly, daily/weekly bank account withdrawals (ACH). Repayment is tied to business revenue flow. Not a traditional loan; involves purchasing a portion of future sales at a premium (high effective interest rates). Generally easier to qualify for but significantly more expensive.

8. Startup Business Loans:

   • Description: Tailored for new businesses (often under 2 years old). May come from lenders specializing in startups, SBA 7(a) Express, Microlenders, or specialized programs. Qualification often relies heavily on the owner’s personal credit score and business plan.

9. Commercial Real Estate Loans:

   • Description: Specifically for purchasing, refinancing, or renovating commercial property (office, retail, industrial, multi-family) owned or leased by the LLC. Longer terms often available. Can be conventional bank loans, SBA 504 loans, or commercial mortgages.

10. Business Acquisition / Buyout Loans:

    • Description: Financing used to acquire an existing business (asset purchase or stock purchase). Structured similarly to term loans but require detailed valuation and due diligence. SBA 7(a) is commonly used for acquisitions.

Common Qualification Requirements (Vary by Lender and Loan Type):

• LLC Operating in Business: Typically active for at least 6-24 months.
• Strong Business Credit Score: Separate from the owner’s personal credit.
• Annual Revenue: Minimum thresholds vary.
• Personal Credit Score of Key Owners: Especially important for newer LLCs or unsecured funding. Often a minimum of 650+ is required for better terms.
• Collateral: Required for many secured loans (equipment, real estate, inventory, receivables).
• Business Plan: Especially for startups or larger loans detailing use of funds and repayment strategy.
• Financial Statements: Profit & Loss (P&L), Balance Sheet, Cash Flow Statement. For newer businesses, personal financial statements of owners may be needed.
• Debt Service Coverage Ratio (DSCR): Lenders assess if LLC has sufficient cash flow to cover new debt payments.
• Industry Experience: Lenders may favor owners with relevant experience.

LLC-Specific Considerations:

• Operating Agreement: Lenders may review it to understand ownership structure, decision-making authority, and potential personal guarantee requirements from members.
• Personal Guarantees: Common for LLC loans, especially smaller ones, unsecured funding, or newer LLCs. This removes the liability protection of the LLC for that specific debt. Guarantees can be by one member (“single”) or all members (“joint and several”).
• Member Contributions: Demonstrating capital invested by members can strengthen the application.