How to Fund your Single Member LLC

Congrats on creating your LLC! Now you want to know how to fund your LLC as a single member owner. This may seem tricky when starting out, but thankfully, the most common solution is pretty simple. Let's look at a few different ways to get money into a your new LLC.

Personal Funds

Many small business owners start out by using their own money by pulling from either their personal checking or savings account.

It can be as simple as transferring a certain dollar amount right into your new business checking account.

That said, you do not want to make this a habit. The initial contribution is expected but continuing to transfer funds from personal accounts could be considered co-mingling which can cause you to lose your "limited liability" protection under the "piercing the corporate veil" theory.

The goal is to make the contribute initially to get the business started, and have the business start generating its own revenue as soon as possible.

Loans

Business loans are another option. Loan options include SBA loans, traditional bank loans or personal loans.

SBA loans are backed by the Small Business Administration and may offer favorable terms and interest rates. These loans are competitive and have strict requirements but are popular targets among small business owners.

Traditional bank loans are provided by banks and credit unions and can be challenging for new businesses. But, with access to good personal credit and collateral, you may be a candidate if you will personally guarantee the loan.

Personal loans may be secured by asking family members or friends to lend money to your new venture. These loans should be formalized in writing with lending terms such as any accruing interest on the debt.

Equity Financing

Working with investors is another option. With equity financing, you sell a portion or "interest" in your business to investors in exchange for capital. This could include venture capitalists, angel investors, or even friends and family.

This is often a tactic used by start ups seeking capital for a product or service that has large growth potential. 

Equity financing is not a common funding method for the average small business or single member LLC but considering that friends or family can invest as well and earn profit, it is an option.

Note that your ownership will be diluted each time you sell membership interest to a passive investor of your LLC.

Grants and Contests

Entering contests and applying for grants is an excellent way to raise money for your new LLC. There are numerous grants and business contests available for small businesses.

These can be industry-specific or aimed at certain demographics, such as women or minority-owned businesses.

Typically, there is no repayment required so your business gets to retain the money without owing debt or paying interest.

Also, your new venture may receive some publicity paving the way to early sales and business exposure.

On the flip side, these grants and contests are highly competitive and can be a time-consuming process consisting of applications, interviews and even travel in some cases.

Crowdfunding

Crowdfunding is becoming more popular these days with platforms like Kickstarter allowing you the opportunity to raise small amounts of money from a large number of people rather quickly.

This method is most effective if your business idea resonates with a large audience. Through social media and word of mouth via family and friends, your single member LLC can have its initial funds to launch without you having to reach into your own pocket.

It usually takes a lot of marketing to be successful and you're not guaranteed to meet your funding goal.

But, even raising some money can be useful and the more interest there is in your business, the more potential consumers when you're ready to launch your product or service publicly. 

Document the Funding

However you initially fund your LLC, you'll want to document that initial amount, known as a "capital contribution" in your LLC Operating Agreement.

A capital contribution is the property, or services that an LLC member contributes to the LLC. Usually, a capital contribution is made when the LLC is formed to fund the business. 

When operating your LLC, you want to keep good management and finance records including documenting capital contributions, bank loans or investments.

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This blog posting is provided for general informational and educational purposes only and is not provided for specific, individual legal, financial or tax advice.