Reply To: If an LLC goes bankrupt and its assets aren’t sufficient to cover its debts, who ends up being responsible for the shortfall?

[Allen Paul]

Yes, creditors who finance LLCs indeed face the risk of not recovering their investments if the company dissolves without enough assets to fulfill its debts.

The willingness to lend to an LLC, however, varies based on the company’s individual circumstances. Many LLCs, including smaller ones, have been operational for years and possess solid financial foundations, making them relatively low-risk for lenders.

This factor contributes to why numerous small businesses choose not to incorporate as limited companies; the perceived risk would likely deter lenders or result in higher interest rates compared to personal loans to the business owners.

Typically, small limited companies begin with initial funding from their founders or evolve from pre-existing non-limited enterprises. When banks do provide loans to these companies, they usually secure them against tangible assets, like property.