I have a single-member LLC (consulting) and I need to inject about $15k of my personal savings to cover startup costs and a few months of expenses. My plan is to treat it as a loan from me to the LLC so I can take the money back later without it being income. Is that as simple as writing a loan agreement and transferring the funds? What should I be careful about?
LLC Funding
Putting personal savings into an LLC and taking the money back later
A loan from you to your own single-member LLC is generally workable, but the paperwork matters more than people expect. Put the terms in writing: principal, interest rate (even if zero), repayment schedule, and what happens if the LLC can't pay. If thre's no note, later withdrawals can look like distributions or compensation.
Could yoi instead just make a capital contribution and then take a distribution later? For a single-member LLC that's often simpler than a loan, unless you specifically need the repayment to be tax-free and not treated as a draw.
Contributions and distributions are simpler in some ways, but they don't create a debtor-creditor relationship. If the LLC has profits, a distribution is generally fine; if it doesn't, taking money out can still be a distribution but may create basis issues. The loan route giv es you a documented receivable, which is why some people prefer it.
I do want the ability to take it back without worrying about profit or basis. I'm mostly concrned about whether a zero-interest loan creates imputed interest issues or looks odd to a bank.
Zero interest between you and your own LLC is usually not a big practical problem, but the IRS can impute interest on below-market loans in some cases. For $15k it's unlikely to be the main issue. Banks mostly care that the money is actually in the business account and that you're not commingling personal and business funds.
Keep the transfer clean: business bank account, memo line saying 'loan from member,' and a signed note in your records. If you ever get audited or apply for credit, that trail is what tells the story.
Also think about repayment timing. If you pay yourself back while the the LLC has no revenue, it can look like you just pulled the money out. A written schedule helps, but reality may not match it.
One more thing: dont use the same account for personal and business spending. That's the fastest way to make a loan look like a mess. If you need to pay yourself back, do it as a separate transfer with a clear reference.
Does your operating agreement say anything about mmber loans? Some templates require member approval or specify terms. Even for a single-member LLC, it's worth checking so you're not contradicting your own governing documents.