Funding Your LLC

Most LLCs need to raise capital to get started with their business. Read about some of the more commonly-used options for obtaining funding.

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An essential element of starting a successful Limited Liability Company (LLC) is properly funding your LLC.  Many new businesses fail because they lack sufficient capital to survive their initial start-up phase.  A detailed, effective business plan may be an important initial step in raising funds so that you can illustrate to potential investors and lenders your ability to pay back loans or to reach profitability over time.  There are numerous options available for funding your LLC and here are some major avenues for you to consider.

  • Evaluate Your Own Assets.  Many future business owners look first to their personal assets to fund their new venture either by liquidating these assets or using them as collateral for loans.  In some instances, you might tap your personal cash savings and sell valuable personal or real property, such as your home, to raise cash for your new LLC.  If you have equity in your home, you may decide to seek out a home equity loan to help finance your business.  But beware that if you are unable to make your home loan payments, you will lose not only your new business, but also a roof over your head. If you have retirement accounts, you may be able to borrow from them to finance your start-up for limited time periods.  However, there may be hefty withdrawal fees and tax penalties for removing funds and not paying them back within required time periods.
  • Contact Your Personal Network for Informal Loans. Just about every entrepreneur has shared their dream of starting their own business with family and friends.  You have your strongest personal connections with those in your family and social circles. Those who know you best are likely to be more willing to put their trust in you and their cash behind your start-up.  This informal financing may be easy to obtain, but may create long-term trouble in your family and social relationships if the money is not paid back.  If you feel comfortable with this potential risk, it may be worthwhile to reach out to your personal network for financial support.
  • Invite New Members to Your LLC Team.  Bringing in additional members may be another option for funding your start-up.  Although you may want to go solo, think about the value of adding other LLC members or owners for funding purposes.  You can pool together your financial resources with your other members to support your new venture.  With other members, you also broaden your LLC’s social network of business contacts, and hopefully potential investors. Aside from raising more funds for your LLC, new members may also yield the added benefits of learning from your fellow owners’ professional experiences. 
  • Look into Credit Cards for Short-Term Financing.  Many individuals may try to start out their business using personal credit cards, such as the entrepreneurs who started Google.  Many credit card services also offer business credit cards which may have low or no annual fees, competitive interest rates and travel rewards and cash back based on business purchases.  Credit cards can provide immediate credit without the paperwork of loan applications or business plans.  Since credit card interest can be quite high, new business owners may want to view credit cards as short-term solutions for LLC needs which should be paid back quickly.  Avoid racking up large amounts of extended credit card debt that could make this fast process for financing very costly long-term.
  • Apply for Conventional Loans From Institutional Lenders.  You might try the traditional route of seeking loans from banks and credit unions.  You will need a formal business plan as part of your loan application process.  Many conventional lenders may be wary of inexperienced business people so don’t be surprised if you face a great deal of rejection.  Borrowing against existing collateral may improve your chances of gaining financing, but it is likely to be a challenging path. If you decide to use your assets as collateral for an institutional loan, recognize that your failure to repay these business loans will mean the loss of your underlying collateral. 
  • Check Out Government-Sponsored Grant and Loan Programs.  Federal, state, and local governments may offer special grant or loan programs through traditional lenders or non-profit intermediaries to help finance your business.  These government-sponsored programs may target 1) types of industries, such as alternative energy, 2) certain business owners, such as military veterans, 3) designated geographic locations, such as economically disadvantaged communities, or 4) particular dollar amounts, such as microloans that may start at amounts as small as $100.  The Small Business Administration (SBA) offers an online search tool for identifying loans and grant programs that may apply to your start-up.
  • Connect with Peer-to-Peer Lending Sites.  In the past few years, peer-to-peer (P2P) or social lending websites have begun to emerge on the Web.  These P2P sites offer opportunities for creditworthy business people to seek out funding from individual or institutional investors. You can apply for a loan online through these sites and investors with site accounts can decide whether or not they wish to fund your proposed business through interest-based loans. These P2P sites are online alternatives to traditional lending institutions and are expected to continue to grow as quick, confidential sources of new business funding. Some well-known P2P sites are Lending Club and Prosper.
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