How Can You Raise Money for Your LLC?

From the moment entrepreneurs file articles of organization for their limited liability company (LLC), they must be laser-focused on securing enough capital to keep the enterprise running for at least another year or two. While organizing your startup as a traditional C-corporation might make it easier to get meetings with venture capitalists, there are several ways you can garner capital for your LLC from outside sources. 

Equity Financing

While LLCs, unlike C-corporations, are not permitted to issue public shares of stock, much less different shares of stock, investors are free to become members of the LLC after buying equity in the company. The good news is that the LLC ownership structure is relatively flexible. This means you can implement governance that prevents private equity investors from taking managerial control over your LLC, while still allowing investors to take part in the company.

Debt Financing

In many cases, it is easier for LLC members to raise funds through debt instruments. As long as you have a separate bank account for your LLC and have made regular deposits into the account, you shouldn’t have too much difficulty getting a line of credit from one or more financial institutions. Beware of high interest rates and requests to take on personal liability for business loans. If you can’t avoid the latter, try to structure the debt to minimize your risk of default. 

State and Federal Assistance

There are numerous grants, tax credits, deductions, incentives, and other financial assistance programs for California small businesses. A good web page to monitor is the Incentives, Grants & Financing section of the governor’s website. Multiple rounds of financial assistance and relief were offered to small businesses in light of the COVID-19 pandemic. The frequency of these offerings has diminished over the past couple of years, but it’s worth keeping an eye out for a program that suits your business. 

The federal Small Business Association (SBA) also offers multiple avenues for small businesses to raise money. Apart from grants and incentives, the SBA contributes funds to SBICs that then invest in other small businesses. SBICs, or Small Business Investment Companies, are private businesses that satisfy numerous SBA requirements and, in turn, receive matching funds to invest in certain companies.

Experienced Legal Counsel Can Protect Your Business

Many of the legal headaches that bring clients to our door have to do with the quest for funding and the consequences that come from the money management decisions that ensue. We hear from people who accepted funding only to discover they’d lost important management rights as part of the deal. We hear from people who are on the hook because the funding they received was spent unwisely or unethically by their partner and now they are responsible for paying it back. Managing your money wisely includes making sure that your company’s financial decisions don’t expose you to legal risks that can sink you or your business. For guidance on how to safeguard yourself when securing funding for your LLC, contact IGC  today.

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