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Can an LLC Loan Money to Another LLC Legally? (Explained)

Max Smith

Reading Time: 5 minutes

Financing an LLC is an essential factor to think about. When planning for your new LLC future, consider taking a loan, and a question may arise: Can an LLC loan money to another LLC?

You can take loans from various sources, including another LLC. But do you know what the components of taking a loan from an LLC are?

In this article, you will get more info about receiving LLC loans from another LLC and other sources.

Starting an LLC and getting a loan is sometimes essential to meeting daily expenses. But where will you get loans? 

There are banks and other financial institutions that can lend you money.  Besides, you can find a lender to provide you with cash. But is that easy? Do you think so?

Gaining money as a loan from a third party or bank can be complex for your startup. It may require time and documents to get the loan amount. 

If you want to avoid document complications and get a quick loan, there’s only one option left. It’s getting a loan from another LLC.

You can feel much more comfortable getting a loan from your other LLC. Plus, you can also borrow money from another LLC.

Now, the question may be on your mind. How can I use my LLC to get a loan from another LLC? What can the process be? Let’s figure it out below.

Operating Agreement

An LLC can have another single-member LLC as a member. Some LLCs permit borrowing money from a member. 

Have you read your LLC’s operating agreement? It may contain rules regarding a member loan to LLC. If it allows loans from members, then you can carry on. 

As a result, your LLC will return the loan to the member LLC. It will be treated as a debt, not an investment.

Loan Agreement

Whether you get a loan from a bank or another LLC, the application process is the same. Usually, a loan agreement includes:

  • Lender LLC’s name, address, and details.
  • The borrower LLC’s name, address, and details.
  • The loan amount.
  • Interest rate.
  • Loan starting date.
  • Loan repayment date.
  • Paying a loan in installments or a lump sum.

It’s an official document that outlines the loan details and builds a formal relationship between the borrower and the lender.

Documentation

Submit a few essential documents to show your LLC’s stability and capability to repay the loan. If both LLCs are yours, there is no need for many documents. Some essential but basic documents are:

  • Financial statements
  • Legal documents
  • Tax returns
  • Business licenses and permits
  • A business plan
  • EIN
  • Account statements
  • Collateral details

Lender Requirements

If the lender, LLC, gives any references, you must fill them up. For instance, some lenders may require six months of business operation (at least). So, discuss any specific requirements with the lender’s owner.

Lastly, you should contact your state officials regarding any specific regulations in your state on receiving a loan from an LLC. Plus, you can consult an expert service provider to smooth the paperwork tasks associated with getting loans from other sources.

Can You Get a Loan With an LLC?

Of course, you can! A loan is a popular way of funding your LLC. You’ll need loans to cover your expenses, especially starting a new LLC. So whether your LLC is new or old, you can apply for a loan. 

There are various ways to get a loan with an LLC—most of them are shown below.

Bank Loans

Applying for bank loans requires several documents, good credit, and other formalities. It’s time-consuming, and you may get a considerable amount of loan. 

Unsecured Loan

There is no need for collateral. But the interest rate is comparatively higher. Typically, a lender will provide unsecured loans based on your creditworthiness.

Term Loans

Banks may lend you money on a specific schedule to repay. However, the interest rate can be fixed or lowered. It can be short-term, long-term, or intermediate-term.

Invoice Factoring

You can sell your outstanding invoices to the factoring companies. It’s a way to collect emergency money to cover expenses. You may pay high fees for invoice factoring.

Business Lines of Credit

You can use a business line of credit if you do not have good credit scores. It’s the same as using a debit card. You will pay only the money you used. It’s different from usual loans.

Equipment Loans

Do you need equipment for your LLC? Then, get equipment loans from an LLC or company. When a company lends its equipment, property, or real estate to an LLC, it is called an equipment loan.

SBA Loans

Your LLC must have a good credit score and substantial revenue to apply for a SBA loan. The most common one is the SBA 7(a) loan. However, the process is complex and lengthy.

Merchant Cash Advances

It’s not a loan but a way to finance your LLC. A merchant cash advance company may buy your future credit and debit cards at a discount. So you get money, and later, you repay the card loans with fees.

Conclusion

By reading the above disclaimer, you may have found the answer to your question, “Can an LLC loan money to another LLC?” Don’t hesitate to contact an expert service provider to clear up any confusion and get assistance.  

Taking a loan is sometimes necessary to run your LLC, but you can also fund your LLC by yourself. Read our article on funding an LLC using personal funds.

Frequently Asked Questions

Can an LLC loan money to an individual?

Yes! You can lend money through an LLC. You may sign the loan agreement and get the cash as a debt. The process is the same as when you lend money from any other institution.

Can I loan my business money and charge interest?

Of course! If you lend money to your LLC, it will count as a debt but not an investment. You will be considered just like a third party that lends money to the LLC. There will be an agreement covering all the loan details and its repayments.

What is an LLC loan agreement template?

A paper containing a design pattern for an LLC loan agreement is a template. It is formed to be used for loan agreements. Plus, it has the framework to formalize the loan arrangements and details to save both parties’ interests.

Max Smith - LLC Formation

He is a seasoned entrepreneur and legal expert at LLC Formation Hub. With a stellar track record in both business and law, Max simplifies the complexities of LLCs. His practical insights, featured on LLC Formation Hub, empower entrepreneurs across the USA. Max merges business finesse with legal acuity to guide businesses toward success.


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