Can an LLC Borrow Money from a Bank?

Denise Elizabeth P
Denise Elizabeth P
Senior Financial Editor & Contributor
Last Updated: April 26, 2021
Date Published: April 19, 2021

Yes, an LLC can borrow money from a bank to fund their business however, there are a few things to know before putting in your application.

Loans are a great way to help small business get through any cash-flow challenges, but loans should make sense and be realistic to avoid any future liability.

Here are a few things to consider before getting a bank loan for your LLC:

  1. Decide where you want to borrow money from

    Getting a bank loan is often the first place that LLC owners look for funding.

    But before you rush to get a bank loan, you should consider other funding options such as credit unions, savings and loans, or even private individuals.

    LLCs can also borrow money from their own members if possible, which is a lower risk option.

  2. Consider the Liability

    Even though LLCs provide personal liability protection to its owners/members, many banks still require a resolution and promissory note by the LLC when they are borrowing money.

    Because LLC members can’t be personally liable for the LLCs debts or defaults, lenders will require a personal guarantee when lending to an LLC.

    Furthermore, the loan must be reasonable or the IRS may rule it as additional capital contributions.

    When considering a bank loan, always look at the liability in case you can no longer make payments or default on the loan.

    You will want to make sure you fully understand the loan terms, payment rate and interest rate to make sure it is reasonable and something that you can pay back.

While loans are a great way to help a growing business meet their cash flow challenges, it can also bring on more risk and liability, should the LLC default on the loan.

For more funding options, visit the SBA.gov funding and loan page here.

 

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  1. SBA.gov "Funding Programs" Page 1 . April 19, 2021