4 Ways that You Can Fund Your LLC

A limited liability corporation, or LLC, requires money in order to run its operations. Such money can be secured from a variety of sources, including angel investors, venture capitalists, banks or even your own pocketbook. Here are some of the advantages and disadvantages of each funding source, as well as how you might procure funding:

1. Small business association loans.

If your LLC is just starting up and you cannot yet prove that it will be a viable business, obtaining a small business association (SBA) loan may be your best choice. The SBA loan is also useful for when you do not have sufficient business collateral to guarantee a loan from your bank. In such a case, the SBA itself steps in and guarantees you to the bank. The SBA does not give you the loan per se, but it does help you secure a loan from a commercial bank once you prove that you could not obtain conventional financing.

To obtain the loan guarantee, you will need to personally guarantee the loan with your own personal finances. You must also demonstrate sufficient business cash flow, a capable management, and how much personal equity has been used to start and maintain the small business. SBA-facilitated loans can go up to $750,000.

2. Bank loan.

A commercial bank can typically provide your LLC with funds in the amount of $25,000 to $100,000. The advantage with using a bank is that you don't have to compromise on your future business decisions. The disadvantage with using a bank is that it tends to be conservative with what it views will be a good investment. Therefore, you need to come prepared with a business plan, a clear idea of how much funding you will require, for what the funds will be used, as well as how and when the bank will be repaid. For first-time funding, it helps greatly if you have an established relationship (i.e. business checking account) with the bank and/or can demonstrate a good borrowing history (i.e., taking a small line of credit). The bank may also ask for market research and if you have some kind of collateral. Finally, a credit check will be performed.

3. Angel investors.

If you already have an LLC that is up and running and would now like to take on additional business, purchase a new building or technology, or hire personnel, then the angel investor is for you. Angel investors are typically composed of already successful businesses that now wish to reach out to smaller businesses and help them get a foothold in the community. Angel investor funds for small businesses are usually in the amount of $250,000 to $5 million. They typically seek a return in five years or fewer.

Your LLC may qualify for angel investment funds if it offers cutting-edge technology, has a high return and is in a field in which that angel investor has some expertise. Submitting a viable business plan is required. Angel investors also typically invest in local businesses since this saves on travel and accommodation costs.

The advantage of working with angel investors is that they will leave most of the business decisions to you and not interfere with your daily business operations. Some angel investors, however, will gladly volunteer their business savvy and act as consultants. One main disadvantage with angel investors is that they tend to be picky. You will need to grab their attention with not only a good business plan, but also a talented management team, fairly priced equity and good business growth potential. Angel investors are also hard to find.

4. Venture capitalists.

Venture capitalists (VCs) typically invest several million dollars in a small business LLC, while others may invest 10 million dollars or more. Although being pursued by a VC may seem like a dream come true, keep in mind that you will probably give up at least 50 percent of your personal control over your business to them. This is not all bad, because many VCs can open doors to various marketplaces and help you generate more business than you could ever generate alone.

VCs will give you lots of money, but they will also expect a high rate of return. It is not unusual if a VC gives you $5 million today and expects your LLC to turn that money into $50 million by the end of 5 years. Given such an expectation, the VC will be analyzing your LLC on the basis of its management team, its existing client base and where the LLC stands in its growth cycle. Submitting a knowledgeable business plan to the VC is a must.