Whether you are starting a business or a business or looking to expand an existing company, you may be considering taking out a significant business loan to get the capital upfront to get your plans and ideas for the future off the ground.
You may firmly believe that your business will work out and that repaying the loan will not be an issue. But there is an inherent level of risk. Changes to the industry or the economy in general could cause your business to suffer.
What happens if you are not able to pay the business loan back? Would you have risked personal assets, such as your retirement savings or your family home? Can the lender try to claim these assets to satisfy the loan?
Different business structures
There is no one-size-fits-all answer, as it depends on numerous factors, including the type of loan you get and your business structure.
With some structures, such as a sole proprietorship or a partnership, you may be personally liable. You are running a business, but you have essentially taken the loan out in your own name.
With a limited liability company (LLC), however, you are shielded from personal responsibility for any business loans. Business assets could be at risk, including real estate, inventory and other company property. However, your business creditors are not able to come after personal assets like the retirement savings. Anything that you own individually is generally protected.
Choosing the correct type of business
As you can see, it is very important to consider what type of business you want to operate based on your goals for the company and the level of protection you need. Having experienced legal guidance can help you determine what will work best for you.