- Limited liability company (LLC) business owners often don’t have the amount of money they need on hand to either start or grow their business.
- There are several effective ways LLCs can raise money to increase cash flow.
- Learn the best ways to get LLC funding, how LLC owners get paid, and how much cash you need on hand in this article from Nav’s experts.
How Do LLCs Raise Funding?
An LLC is a business entity that offers liability protection for its owners. It’s different than a C corporation (C corp), although you can choose to have your LLC be taxed as a corporation. Raising capital or fundraising for an LLC is probably going to look different than for a corporation or startup. While corporations and startups typically turn to investors like venture capitalists or angel investors to raise funding, it will likely be difficult to get venture capital for an LLC. But there are many ways to secure LLC financing.
First, consider bootstrapping your LLC. This basically means starting a business on a small budget, using your personal assets. You’ll try to avoid any unnecessary expenses until you get going and the business can afford to grow. Also, you can consider crowdfunding and raise money with the help of friends, family, and even strangers.
But neither of these options may be open to you to build your LLC or help with cash flow. For these businesses, we cover the best ways to raise money in the next section.
What Are 3 Ways a Company Can Raise Money?
There are several ways of funding LLCs that business owners use frequently. Here are some of the most common ways:
1. Apply for business funding
There are many types of small business loans that your business may qualify for, like lines of credit, term loans, and merchant cash advances. You’ll usually have to pay interest on what you borrow, but the increased cash flow could make all the difference in your business success. Plus, you may be able to secure a lower interest rate if you have good credit. Learn how to establish business credit to get started.
Also, consider business credit cards. Credit cards can be an invaluable tool for small businesses that need flexible funding. It’s typically easier to qualify for a credit card than a business loan as well.
See the funding options you’re most likely to qualify for — before applying — by securely adding your business details to your profile with Nav.
2. Bring on a new LLC member
An LLC can have multiple owners (called members). Bringing on a new owner and forming a partnership can increase your access to capital through what is called capital accounts. The new member should contribute seed money to your LLC. Plus, they may have network connections to willing investors.
Be sure to update your operating agreement accordingly and document your capital accounts thoroughly (and don’t be afraid to bring in professionals for tax or legal advice).
3. Look for a grant
Small business grants offer money that you don’t need to pay back. Grants can be difficult to get since the competition is often high, but they also offer a great way to increase your cash flow. Be sure to read the requirements before applying — you might be surprised how far simply following the instructions can take you. Many grants also target specific small business owners, like women or veterans.
How Much Cash Should I Keep in My LLC?
The amount of cash you need in your LLC’s bank account depends completely on what type of business you run. A small freelancing business will probably need much less cash on hand than an LLC that manufactures goods. Make sure that you have enough cash in your account to cover upcoming expenses and bills, plus some wiggle room, as well as funding for any new projects or growth you’re planning. Keep in mind that some of this cash can come from small business funding.
How Do Investors Get Paid in an LLC?
If you’re a member of an LLC, you can’t take out a salary. Instead, you’ll need to take out a share of the profits. For a single-member LLC, you’ll take out an “owner’s draw,” which is a transfer via check or transfer from the business bank account to the member’s personal account.
For a multi-member LLC, you’ll use capital accounts to pool all the owners’ investments. The details should be included in the LLC operating agreement. Members can draw from this pool of money as needed and as applicable, which should be recorded by the business’s accounting team.
What Are the Qualifications an LLC Needs To Be Approved for a Loan?
Lenders usually look at the following when they’re assessing whether or not you qualify for a loan:
- Your credit score (personal and business)
- Your annual revenue
- Your time in business
Other factors that may come into play are your business plan, your business financials, and how much collateral you can put down. If you’re applying for a loan from the Small Business Administration (SBA), there are notoriously strict requirements to qualify. Keep in mind that having higher business and personal credit may help you secure lower interest rates.