How To Manage An LLC Business Loan

Key takeaways

Read the terms of your loan carefully to ensure you manage it effectively. Ask your lender questions if you’re unsure about loan terms and conditions.
Securing an LLC loan with business assets can help you get more favorable terms but makes your collateral vulnerable to seizure if you fall behind on payments.
If you’re unable to make a payment on time, contact your lender right away to find out your options to avoid default.
Make a business budget before taking out an LLC loan to ensure you can afford to repay it and make on-time payments.

An LLC loan is a type of financing provided to a limited liability company (LLC) to support its business operations, expansion, or other financial needs. Understanding how to manage an LLC loan properly is crucial to maintaining the company’s financial health, preserving creditworthiness and ensuring legal and tax compliance. Effective loan management also helps avoid cash flow issues, reduces the risk of default and supports long-term business growth. You should also carefully weigh the pros and cons of LLC loans before deciding if this financing option is right for your business.

Once you figure out how to get an LLC loan, the next step is managing that debt effectively to stay on top of payments and maximize your return on investment. Understanding when an LLC loan makes sense is just as important as knowing how to manage it, so you can ensure you’re only borrowing when necessary and the loan supports your business’s long-term goals.

1. Understand the loan terms

Specifically, read through the entire loan agreement to make sure you understand the following:

The loan amount (how much you borrowed)
The loan term (how long you have to pay it back)
The repayment schedule (how much you own to the lender and when)
The business loan collateral (what you put up to secure the loan)
The interest rate and whether or not it fluctuates (fixed vs. variable interest rate)
The grace period (if any) for late payments
Any associated fees, like a prepayment fee if you pay off the loan early

If you’re not sure what something in the loan documentation means, ask your lender for clarification. The last thing you want is to set an aggressive repayment plan for yourself only to find out that paying off the loan early lands you with a hefty fee, or discover that your interest rate is variable when you thought it was fixed.

2. Have a budget

Just like any other debt, business loans for a new LLC or a longstanding one require regular repayment. A business budget helps you keep track of your income and expenses. This can make it easier for you to manage your business loan.

To create a business budget, examine your revenue. You may be able to do this based on your most recent months of accounts receivable, but you’ll also need to account for seasonal changes and slow periods. From there, you’ll need to determine your fixed costs and variable expenses, which get subtracted from your income. This is also how you generate a cash flow statement, which many lenders will want to see if you’re applying for a loan.

If you’re not a fan of doing the math, business budget software or working with an accountant can go a long way to making it easy to create and keep an eye on your budget.

A business budget can help you address deficits or cash flow issues early on. If you’re having trouble balancing your budget, you can cut costs such as reducing staff, changing the services or products you offer or moving to a cheaper location.

Loan costs

Before taking out a business loan, you can use a business loan calculator to help you understand how much the monthly installment payments will be and ensure it’s affordable. These types of loan calculators also provide the amortization schedule for the interest on your loan, which can also be useful, providing a picture of what you are paying to borrow money.

3. Make on-time payments

Having a solid grasp on how to manage LLC finances before taking out a loan is critical to the financial health and future of your company.

Missing payments on LLC loans will cost you, as your lender will most likely charge a late payment fee. That could be a flat rate or a percentage of your missed payment. Some loan terms may specify that both are options, and the lender will charge whichever is greater.

Beyond that, missing payments will impact your credit score. If you ever need to borrow money in the future, a lower credit score means paying more in the form of a higher interest rate.

Further, an LLC loan can be secured or unsecured. A secured loan requires business collateral, which a lender can seize if you fail to manage your LLC loan repayments effectively.

To make sure you don’t miss a payment, you have some options. First, if your lender offers it, establish autopay. This allows the lender to automatically draw your monthly payment from one of your business accounts, preventing an inadvertently missed payment.

Set up reminders

Even if you put your LLC loan on autopay — and especially if you don’t — set up a recurring calendar reminder for a few days before your payment date. If you’re paying the loan manually, this gives you enough time to make the payment. If you’re on autopay, it lets you check your account to make sure it has sufficient funds to cover what the lender will draw.

4. Watch your credit

Depending on the type of loan and the lender, your payments will be reported to the major credit bureaus. Some lenders may report to personal credit bureaus; others may report to business credit bureaus like Dun & Bradstreet.

To avoid surprises, periodically check your credit score. If you notice any errors, dispute them. Doing so should improve your score.

Building credit

If your top lender doesn’t report to a credit bureau, consider getting the loan and also opening a business credit card. You can then use the business credit card to make everyday purchases and build business credit through a positive payment history.

5. Get help if needed

If you think you might miss a payment, reach out to your lender before that payment date. Lenders want you to be able to pay back your loan and may work with you if you’re in a tight spot.

If your lender doesn’t help you, you can explore refinancing your business loan or using a business consolidation loan. While these options might be able to help you out of a tight spot, they usually come with loan origination fees or one-time costs to establish the loan.

You don’t want to miss an LLC loan payment, so start exploring your options well before that happens. If the loan goes into default because you miss a payment for too long, it can tank your personal and business credit scores and — depending on the terms of your loan — mean the seizure of company or personal assets.

Ultimately, make business loan payments a top priority in your budget and keep close track of revenue to make sure you’re bringing in enough to cover all business expenses.

Bottom line

With business loan options ranging from term LLC bank loans with fixed interest rates to business lines of credit, you have options that will help you grow your business. However, you need to be ready to pay back what you borrow, or you could compromise not just your company but also your personal finances. Making sure that you have steady streams of revenue, understand all the terms and costs of the loan agreement and keep close tabs on your budget will set you on the right path for managing your LLC loan.

Frequently asked questions

That depends on your business. Remember, all loans come at a cost: the interest and fees you’ll pay. Determine if your company truly needs that money or if you are eligible for alternative financing like business grants or crowdfunding.
Properly managing your business debt keeps your company and yourself in good financial standing. Making your payments on time can help build your credit. Missing payments, on the other hand, could mean the seizure of company or personal assets, depending on the terms of your loan.
If an LLC defaults on a loan, a lender will typically try to work with you, setting up a plan to pay off the loan. If this doesn’t work, you’ll go into default. If you signed a personal guarantee or provided collateral, your lender has the right to seize assets. Your credit score will also drop. Late payments and defaults will show up on your credit report for up to seven years or longer, making it harder for you to get financing in the future.
No, LLC loans are just small business loans that LLCs apply for. However, LLCs may have differing documentation requirements than other business structures and the approval process may be different. It’s a good idea to ask lenders about the application and underwriting process for an LLC before choosing a lender and loan type.
Payments on LLC loans aren’t tax-deductible, but the interest you pay may be tax-deductible as a business expense. It’s a good idea to discuss your options with a tax professional to determine if any part of an LLC loan is tax-dedu