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, including selling your assets, apply for loans, and expanding your team.

By , J.D. · New York University School of Law
Updated by Amanda Hayes, Attorney · University of North Carolina School of Law

An essential element of starting a successful limited liability company (LLC) is properly funding it. Many new businesses fail because they lack sufficient capital to survive their initial start-up phase.

A detailed, effective business plan can be an important initial step in raising funds. Your plan can help show potential investors and lenders that you can pay back business loans and become over profitable time. You have numerous options available to you to fund your LLC. Here are some major avenues for you to consider.

For more information, read our guide to loan and financing options for small businesses.

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 these assets as collateral for business 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 might decide to seek out a home equity loan to help finance your business. But beware that if you're unable to make your home loan payments, you'll lose not only your new business, but also a roof over your head.

If you have retirement accounts, you might be able to borrow from them to finance your new business for a limited time. However, there could be hefty withdrawal fees and tax penalties for removing funds and not paying them back within the 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 new business.

This informal financing might be easy to obtain, but it could create long-term trouble in your family and social relationships if the money isn't paid back. If you feel comfortable with this potential risk, it might be worthwhile to reach out to your personal network for financial support.

For more about receiving gifts, loans, and equity investments from friends and family, read our article on raising private money.

Invite New Members to Your LLC Team

Bringing in additional members could be another option for funding your business. Although you might want to go solo, think about the value (and sweat equity) of adding other LLC members or owners for funding purposes. Adding new members can help you:

  • pool together your financial resources with your other members to support your new venture
  • broaden your LLC's social network of business contacts (and hopefully potential investors), and
  • yield the added benefits of learning from your fellow owners' professional experiences.

Make sure you define each LLC member's management responsibilities, fiduciary duties, contributions, and profit share in your LLC's operating agreement.

Look Into Credit Cards for Short-Term Financing

Many individuals might 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 that could 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, you might want to view a credit card as a short-term solution for your LLC's needs that 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 business loans from banks and credit unions. You'll need a formal business plan as part of your loan application process.

A business loan can be a great option for LLC owners. Because LLCs offer their owners limited personal liability for business debts, owners don't have to worry about risking their own assets if they can't make their loan payments. Lenders usually can't come after you personally for a business loan unless you put up collateral or personally guarantee the loan.

But many conventional lenders could be wary of inexperienced business owners so don't be surprised if you face a great deal of rejection. Putting up collateral might improve your chances of gaining financing, but applying for a conventional loan 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.

For example, suppose Midge Maisel wants to borrow $20,000 from a bank to fund her new comedy club. Because Midge is a new business owner without any revenue to show, the bank requires her to put up collateral to secure the loan. Midge uses her personal car as collateral for the business loan. Unfortunately, the economy takes a downturn—Midge misses a few loan payments and defaults on her loan. To pay back what she owes on the business loan, the bank takes Midge's car.

For more information, read the 6 steps to getting a small business loan.

Check Out Government-Sponsored Grant and Loan Programs

Federal, state, and local governments will often offer special grant or loan programs through traditional lenders or nonprofit intermediaries to help finance your business. These government-sponsored programs might target:

  • types of industries (for instance, alternative energy)
  • certain business owners (such as military veterans)
  • designated geographic locations (for example, economically disadvantaged communities), or
  • particular dollar amounts (like microloans that can start at amounts as small as $100).

The Small Business Administration (SBA), a federal agency, offers a lender-match program that connects you to lenders offering SBA-backed funding.

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 internet. These P2P sites offer opportunities to creditworthy business owners who want 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 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:

Talking to a Small Business Attorney

You have a lot of options ahead of you as you look for funding for your LLC. But as you work through these options, you might run into some complications or have questions. If you have experience raising and borrowing money for businesses, then you can probably figure out most problems on your own.

But if you face a particularly complex issue or you need legal advice, consider talking to a small business lawyer. They can help you weigh the benefits and drawbacks of these options for your particular business. A business attorney can also help you draft your LLC operating agreement if you add new members or review your loan agreement or promissory note if you apply for a loan.

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