How to Finance an LLC

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A limited liability company, or LLC, is a legal entity that protects business owners from personal liability by shielding their personal assets from creditors or claims on the business. It is a privately held company, unlike a corporation. Because of its special legal structure, financing an LLC can be somewhat challenging since the business must have assets of its own and shares of stock cannot be issued to the general public to raise capital.

Create a sound business plan and a statement of expected returns. Your first step to getting financing is to have a prospectus to show to investors, whether those investors are banks or people you know. Investors will want to see a business plan that includes profit-and-loss statements. They will also want to know the expected rate of return, or how you expect to pay them back. All this documentation should be compiled before you talk to investors.

Apply for a loan at a bank or credit union. The loan should be in the name of the LLC, in order to shield your assets and maintain separate business and personal liabilities. The bank must feel that the business is a good investment and that it is likely to be able to pay them back. This is where the business plan, profit-and-loss statement and expected rate of returns are key. Any assets that the business has may also be able to be used as collateral to guarantee the loan.

Contact private investors. These investors may be family members, friends or employees of the company. In some industries, such as technology, you can also contact venture capitalist firms or other professional organizations that exist to lend money to new businesses. Because your LLC is not a corporation, you cannot issue public stock to raise money, but you can structure private financing agreements with private investors. The financing agreement should state clearly how the investors are to be paid back. For example, is this a loan that will be paid back with interest or are investors buying a share of future profits? Show investors your business plan and projections for the expected rate of return on their investment.