Funding Your LLC: Top Ways to Finance Your Company

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Having the next best business idea is great, but how should you structure your business? LLC, or limited liability company, is one of the most popular types of business formations in the U.S  LLCs protect your personal assets from being seized to satisfy business debts. Unlike corporations, the IRS does not levy separate taxes on the LLC, and you pass your profits and losses to your company members.

You have the flexibility to run your business as you want, either the owners can run the company, or you can hire a manager. It makes you eligible for a business loan and boosts your credibility by showing you’re willing to put in the time, effort, paperwork, and fee to make your business legit.  Let’s look at how you can build an LLC and what financing options you can avail. 

To start an LLC, compare the business name you want with existing business in your state. Then, choose an LLC registered agent (who can be you, your friend, family member, or a registered agent service) who accepts state notices and legal mail on your behalf. They must have a physical address, as PO boxes aren’t allowed. Now, file a Public Records Filing for a New Business Entity. 

After it is approved, it becomes a certificate of formation. You can now create an LLC Operating agreement that shows who owns the LLC and proves that you are running your LLC adequately. Then, get an EIN number, which identifies your LLC for tax purposes and helps you apply for business licenses and permits. After Your LLC approval, you have 60 days to register it with the division of taxation. The process may vary from state to state; for example, if you live in New Jersey, you can refer to this guide to starting an LLC in New Jersey.

Let us look into different options you can avail to finance your LLC. 

1. LLC or Small Business Loans

LLC loans are very similar to small business loans, except they are for limited liability companies. They are similar to loans found at credit unions, online lenders, and traditional banks, and help you cover short- and long-term costs such as inventory purchases and business debt refinancing.

If your LLC loan is secured, you will need an asset to help secure the loan. A collateral gets you a more favorable term, as your lenders can seize the asset if you fail to pay it back. There is no collateral for unsecured loans, but they often come with high-interest rates, stringent credit checks, and hastened repayment plans.

If your lender requires a personal guarantee, it voids the liability protection you get from registering your business as an LLC. However, you can negotiate with your lenders or refuse to sign with your lender if they require a personal guarantee. 

1. Grants And Local Government Programs

These are financial awards given by state, local, or federal government for a business you need not repay as it is not a loan. No interest rate or revenue-sharing is involved (though there may be revenue-sharing agreements with the government, such as when you discover something that generates patent profit).

The competition is tough, so you need a viable business plan and skilled writers specializing in grant proposals. Go to Grants.gov; it is a free online source where you can apply and research different federal grant programs worth $500 billion annually. 

1. Rollovers as Business Startups (ROBS)

ROBS involves moving money from your retirement savings, such as your 401(k) savings or traditional retirement account, into your business. They are tax-free and help you avoid trading ownership or taking on business debt.

You form a C corporation (or C corp) structure that allows shareholders to create a new retirement plan for the corporation. Next, you will become an employee and a beneficiary of the new retirement plan. After this, you use the rollover funds to purchase company stocks and use the proceeds to start your business.

However, you are risking your retirement funds in case your business fails. Operating as a C corporation means paying taxes on your profits and dividends. As you must meet tax filing requirements, you must hire an attorney and an accountant. 

1. Crowdfunding 

Crowdfunding uses small capital amounts from a large number of individuals. Using social media and crowdfunding websites brings together an extensive network of people, investors, and entrepreneurs. They can choose to invest in various projects for less than $10. You can raise the money without giving control to venture capital investors. Popular crowdfunding websites include:

• GoFundMe: individuals typically use it to cover medical expenses or recover from disasters, such as earthquakes.
• Kickstarter: You can only use Kickstarter to raise funds for created projects. You can not use it to raise funds for charity or offer incentives, such as revenue sharing or equity. It releases funds after you reach the campaign goal.
• Indiegogo: it accepts projects from any category, and unlike Kickstarter, you can receive funding pro-rata or after you hit your target.

If you cannot meet your funding goal, investors will get their money back, and you will receive nothing.

There are numerous benefits to forming an LLC, and once you establish a solid business idea, consider this business formation. You can avail of different financing options for your LLC, but do further research about the pros and cons and speak to a financial advisor about the best course of action for you to take.