Taking a business loan can feel intimidating, even when it is necessary. A new business owner may understand that they need an influx of cash to get their startup idea off the ground, and they are confident that that idea will make money in the long term. But there are no guarantees in business, so they also know that the company may not be viable, and it could be difficult to pay back significant loans.
One fear that these business owners have is that they are taking on too much risk. They may own a home for their family, and they may have retirement savings or other significant personal assets. Naturally, they do not want to put these assets or their family’s lifestyle at risk over their business idea. One way to avoid that risk is by using a limited liability company (LLC).
How is an LLC different?
Some business structures, such as a sole proprietorship, require the business owner to take loans out in their own name. Creditors can then come after both business assets and personal assets if the owner defaults on the loan.
But with an LLC, the company itself can take out those loans. Only the business entity is responsible for paying back the cost of that loan.
If the business does not pan out, creditors can still take business assets, remaining cash on hand, real estate and other things owned exclusively by the company. But they cannot come after the owner’s personal assets, like their retirement savings or their home.
This is just one of the reasons why it is important to carefully think about what business structure you want to use when starting a new company. Be sure you know what legal options you have and what steps you will need to take to set everything up correctly, giving yourself the financial protections you are looking for.