Borrowing against what your LLC owns
Borrowing against an asset instead of selling it defers tax and keeps the asset. When the asset sits in an LLC, a few more questions come with the loan.
Who has authority
The operating agreement decides who can borrow, pledge company assets, and sign. Many require member consent for borrowing above a threshold or for pledging substantially all assets. Lenders will ask for a resolution.
Personal guarantees
Lenders usually want an owner's guarantee for a small LLC. Single-member liability protection doesn't cover what you personally guarantee.
Crypto-backed loans
The lender holds the crypto as collateral. If the price falls, you get a margin call, and if you can't meet it, the lender sells. That forced sale can be a taxable event, at a time you didn't choose. Read the liquidation terms and whether the lender can re-lend your collateral. More on holding crypto in a business entity.
Paying the proceeds out
Distributing borrowed money to members is common. Two things to check:
The interest deduction follows how the money is used. Proceeds paid out to members are traced to what members do with them, which can make the interest nondeductible.
Basis. In an LLC taxed as a partnership, company debt can raise members' basis, which can keep a distribution from being taxed. In an S-corporation, it generally doesn't. Distributions beyond basis are taxable. See distributions, guaranteed payments, and salary.
Document it
A loan to the company, a pledge of company assets, a member resolution, and a distribution record. If a member lends instead of a bank, document that too: is it a contribution or a loan?
What to do
Read your operating agreement for borrowing authority before you apply. Run the distribution past your tax preparer before the money moves. Document review and revision covers the resolution and the loan documents.
This is general information, not legal advice for your situation. If you want an answer for your business, book a consultation.
