How Much Will an LLC Loan Cost?

Starting a business or expanding an existing one often requires capital, and for Limited Liability Companies (LLCs), securing a loan is a common strategy. But how much will an LLC loan truly cost? The answer depends on factors like the loan type, lender, and the borrower’s financial health. This article breaks down the costs, terms, and strategies to minimize expenses for LLC loans in 2025.

Types of LLC Loans and Their Costs

LLCs have access to a variety of financing options, each with distinct costs and terms:

1. Term Loans

• Interest Rates: 1.66%–99% APR (median fixed rate: 7.98%, variable rate: 8.74%).
• Fees: Origination fees (up to 5% of the loan amount) and late payment penalties (up to 5% of the balance).
• Repayment Terms: 3–36 months for short-term loans, up to 10 years for large purchases like equipment or real estate.

2. SBA 7(a) Loans

• Interest Rates: 12.5%–15.5% for fixed-rate loans; 10.5%–14% for variable rates.
• Fees: Guaranty fees (0%–3.75%) and servicing fees (0%–0.55%).
• Repayment Terms: 10 years for working capital/equipment, up to 25 years for real estate.

3. Merchant Cash Advances (MCA)

• Cost: Factor rates of 1.1–1.5 (translating to APRs up to 350%).
• Repayment: Daily/weekly payments until the advance plus fees are repaid.

4. Business Lines of Credit (LOC)

• Interest Rates: 7.65%–9.15% (fixed or variable).
• Fees: Underwriting costs and closing fees (1%–5% of the loan amount).
• Repayment Terms: Up to 5 years, with a 6–18 month draw period.

5. Invoice Factoring

• Cost: 0.55%–8.25% of invoice value.
• Repayment Terms: 30–90 days, tied to customer payments.

Key Factors Influencing Loan Costs

1. Lender Type:
2. Banks: Offer the lowest rates (6.42%–12.41%) but require strong credit and collateral.
3. Online Lenders: Charge higher rates (up to 99% APR) but offer faster funding.

4. SBA Loans: Competitive rates (10.5%–15.5%) with federal guarantees.

5. Business Financial Health:

6. Higher credit scores (personal or business) and stable cash flow reduce rates. Startups or businesses with less than two years of history face stricter terms.

7. Collateral:

8. Offering assets (e.g., property, equipment) can lower rates by 1–3%.

Cost Comparison: A Practical Example

Consider an LLC seeking a $50,000 loan for inventory:
- Term Loan at 15% APR: Interest over 5 years = $21,370.
- SBA Loan at 12.5% APR: Interest over 5 years = $13,750.
- MCA with a 1.3 factor rate: Total repayment = $65,000 (factor rate × $50,000).

The difference between the cheapest and most expensive options here is $41,250.

Strategies to Reduce Loan Costs

• Improve Credit Scores: A 100-point increase in a personal credit score can drop APR by 2–4%.
• Collateralize Loans: Offering assets like real estate can reduce rates by up to 3%.
• Shop Multiple Lenders: Comparing offers within a 14-day window avoids multiple hard inquiries on credit reports.

The Impact of Federal Reserve Policy

The Federal Reserve’s rate cuts in 2024 reduced SBA loan rates. For instance, a $500,000 SBA 7(a) loan saw its maximum rate drop from 13.5% to 12.75%, saving $26,607 in interest over 10 years.

Conclusion

An LLC loan’s total cost can range from 6.42% to 350% APR, depending on the borrower’s qualifications and loan structure. SBA-backed loans offer the most competitive terms (10.5%–15.5%) for qualified businesses, while MCAs and online lenders provide quick access to capital at much higher costs.

To minimize expenses, LLCs should:
1. Prioritize improving credit scores and securing collateral.
2. Compare SBA loans, bank loans, and alternative options within a short timeframe.
3. Use fixed-rate loans for long-term needs and variable or flexible terms for short-term cash flow.

With careful planning and strategic comparisons, LLCs can secure financing at rates as low as 7% APR, avoiding the pitfalls of high-cost alternatives.

Data sources: Federal Reserve Economic Data (FRED), SBA Loan Program Guidelines, 2024–2025 lender surveys.