Starting and running a small business often requires a significant amount of capital. While there are various funding options available, securing a bank loan is a popular choice for many entrepreneurs. When applying for a bank loan, it’s essential to provide accurate and thorough information about your business structure, including any limited liability company (LLC) and doing business as (DBA) names associated with your venture. In this article, we will explore the importance of disclosing your LLC and DBAs when applying for a bank loan.
Understanding LLCs and DBAs
Before delving into the loan application process, let’s briefly discuss LLCs and DBAs. A limited liability company (LLC) is a business structure that offers personal liability protection for its owners, known as members. It combines the benefits of a corporation and a partnership, providing flexibility and limited liability for its members. LLCs are a popular choice for small businesses due to their simplicity and tax advantages.
On the other hand, a “doing business as” (DBA) name, also known as a trade name or fictitious name, is an alternative name under which a business operates. It allows businesses to conduct their operations and market themselves under a different name without formally changing their legal entity. DBAs are often used by sole proprietors and partnerships to create a distinct brand identity.
Disclosing LLC and DBA Information
When applying for a bank loan, transparency and accuracy are crucial. Banks need a comprehensive understanding of your business to evaluate its financial health and assess the risks involved in lending you money. Therefore, it is essential to disclose your LLC and DBA information in the loan application.
Here are a few reasons why disclosing your LLC and DBAs is important:
- Legal Compliance: Banks need to verify that your business is legally registered and in good standing. By disclosing your LLC and DBA information, you demonstrate your compliance with state and local regulations. It helps build trust and shows that you are operating your business in a legitimate manner.
- Ownership and Liability: Providing your LLC information establishes the ownership structure of your business. Banks want to know who the owners are and their respective ownership percentages. This information helps them assess the financial responsibility and liability of each member. By disclosing your DBA, you inform the bank about any alternative names you operate under, which can aid in conducting a comprehensive background check on your business.
- Business Credit: Banks consider the creditworthiness of both the business and its owners when evaluating loan applications. Disclosing your LLC and DBA names allows the bank to access your business credit history accurately. This information helps them assess your business’s ability to repay the loan based on its financial track record.
- Collateral and Assets: In some cases, banks may require collateral or a lien on business assets to secure a loan. Disclosing your LLC and DBA information allows the bank to evaluate the assets associated with your business accurately. This information helps determine the collateral value and the overall risk associated with lending to your business.
- Brand Recognition: If you are operating under a DBA, disclosing it helps the bank recognize your business in the market. This information allows them to associate your business’s reputation, brand value, and market presence with the loan application. It can positively influence their decision, especially if your DBA has a strong brand presence and customer recognition.
Conclusion
When applying for a bank loan, providing accurate and comprehensive information about your business is crucial. Disclosing your LLC and DBA names demonstrates your legal compliance, ownership structure, and business credibility. It enables the bank to evaluate your financial health, creditworthiness, and the associated risks accurately. Remember, transparency is key when dealing with financial institutions, so make sure to disclose your LLC and DBA information when applying for a bank loan.
Video Transcript
I am very close to starting my business. I was looking to register my LLC as a very broad name and create one or two DBAs under the LLC to specify each business niche I will be starting. When getting a bank loan, do I fill out information for both the LLC and DBA?
All right. The short answer is yes, you will disclose both of those to the bank, but it is only one LLC and a nickname. Here is how that works. You walk into the bank, and you say, “Hi, could I meet with a business banker? I am interested in a bank loan.” And the teller at the front desk says, “Sure, let me see if somebody is available.” So the teller at the front counter finds a business banker who you can meet with. You then typically sit down, and they say, “Hey, tell me about your business. Tell me a little about you.” And you small talk a little bit. And then let’s say you decide, “Hey, I am interested in applying for a bank loan.” The banker is going to explain some of the different loans that are available to you. One of those would be an SBA loan or a small business administration loan, which means it is backed by the federal government. If you default and don’t pay the loan, the federal government will cover part of that. And you say, “Hey, that sounds great. I would love to get started.” They say, “Great, here is an application. Fill out this information about your business.” You are going to fill out all the information about your LLC. And then, the application will probably ask, “Does the LLC have any other names? That would include DBAs or assumed names, and that is where you would put any other DBA that it has.”
So, just to be really clear, you are filling out the application for the LLC, and you are identifying any other names it goes by. But you are not filling out a separate application for the DBA because that would involve a lot of redundancies. The DBA is just a nickname for the LLC.
Conclusion
All right. That does it for today. I would love to know if you find this helpful. And by the way, if you have other questions, feel free to add them in the comment section below. We will grab those and use those for future live sessions. You can also submit questions by email or using the form in the description below.
I am Aaron Hall, an attorney for business owners and entrepreneurial companies. This has been an educational broadcast. As always, all these issues I encourage you to use as topics to discuss with your attorney, not as a replacement for an attorney. This is educational information to empower you to avoid problems, establish a great company and hopefully have a better life You can find more about me at aaronhall.com.