Debt Financing and a LLC Question

[maplater]

Hi, if there is anyone who can answer this. I know that a LLC has limited liability, my question is does this just applly to equity financing or both equity and debt financing. If your business takes a line of debt financing say from a bank when starting up and then declares bankruptcy does the limited liability still apply to this debt so that only the assets of the business itself can be taken?

 

[jill_domains]

It will be dependent on the following factors, at least:

1. State Laws
Depending on the state in which you are incorporated, liability rules may differ for LLCs - so you need to consider the state rules for LLCs.

2. General Partner Liability
The general partner is more liable, usually (for LLPs) - again, rules differ!

3. Guarantor Liability
Most banks may insist on this - if you personally guaranteed the debt financing, you will be held liable.

Now, assuming none of these are applicable in your case: You should not be held liable for debt financing, to the best of my knowledge and belief.

Best wishes,
Sujith.

 

[frankr]

Sujith's answer is good. Often banks will not extend lines of credit to a new business without personal guarantees from partners, or in the case of a new corporation, the major stockholders. If the partners or stockholders do not each have a positive net worth then it can be difficult to get credit funding.

Frank

 

[weblending]

Frankr is right, small business loans are usually tied to personal credits. You should look at banks that offer small business loans through the SBA programs. Most local banks are required to lend out to local businesses. Plus the fed will take the loan off the bank's hand so there is no risk to them so you will get a great deal. Let me know if you have more questions.