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Should You Consider Payroll Loans For Your Business?

Publish date: Thu, 26 Sep 2019, 06:12 AM
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Visualize yourself in this circumstance: it is time to hand in payroll, yet you do not have sufficient working capital to fulfill your obligations. Your company has a later paying customer, and business has been slow. Of course, you know the money will be arriving soon. However, at the moment, you are in a bind.


If you think you are facing this situation and need fast cash to cover the paycheck, then you may leverage from a payroll loan. These loan types are advances or short-term loans that let you borrow cash to pay your people.


However, expectedly, payroll loans can be indeed costly. Also, the payroll financing firm will want you to repay the loan as soon as possible. For a little help, we will walk you through what payroll loans are, and how it can help you pay your people, as well as grow your business. Read on!

What You Need to Know About Payroll Loans

Payroll loans are extensive definitions for short-term loans created to make the cash flow of a company smooth. If you cannot repay your employees, then you will have more unmotivated, unhappy, and mad employees in your business. Also, you will need to face government regulators.


There are typically three payroll loan types. They arrive in one of the following types:


  • Invoice Factoring: For the most part, have you got any unpaid invoices in your company? If yes, then you can undoubtedly borrow cash against unpaid invoices through invoice factoring. Through this method, you will receive or obtain a cash advance of at least 85% of the total invoice and can utilize the unpaid invoices as collateral. Because the outstanding invoice is the collateral, you will not need to present your credit scores or business statements to be eligible with a factoring company.
  • Cash Advances: Rather than making a loan, you can, more often than not, sell a portion of the future credit card sales of your business for lump-sum funding. In some cases, business loans are more affordable than merchant cash advances. However, they can be much simpler to qualify because your credit score is not examined or appraised. As an alternative, only your credit card sales are, for the most part, considered.
  • Short-Term Loans: These loans have short terms since they’re aimed to be repaid as soon as possible. A lot of online creditors handles or deals with this type of loan in one business day. However, you will usually need to have at least 600 personal credit score, evidence, and verification of business income, and annual business history. Additionally, the creditor may ask you to convey a postdated check for the whole amount with them to guarantee and assure that they are paid.

Who Can Leverage From Payroll Loans?

Payroll loans must only be leveraged or taken advantage as the last defense option from unpleasant financial situations, such as having bad credit loans. The interest rates on this type of loan can be at least 30%. Therefore, you need to consider all choices before getting a loan from a payroll funding creditor.


The following are some instances in which payroll loans may benefit your business:


  • Traditional creditors have rejected your loan application: If traditional lenders reject or cannot get your business loans approved yet need to send salaries quickly, then payroll loans could be the best option. It may be best to take a 15-30% interest rate payroll loan than dealing with the repercussions of not sending paychecks to your employees.
  • You have hired extra people for a sudden rise in sales: Say, for example, your business is a seasonal type, then you may have financing fluctuations between your busy times and slow times. On the other hand, if you own a vacation business near the coast, you may need to pay an outsourcing company to hire extra people during the summer season. Prior to the busy season, you may not have sufficient money or income to pay your extra workers. Fortunately, payroll loans can help you so that you can pay all employees on time.
  • You are dealing with a lack of short-term cash: More often than not, cash flow is not always a smooth-sailing cycle. Oftentimes, paying for huge business expenses may leave you a small amount to pay for your employees. When you know your customer will pay you in a month, short-term loans could help you keep your company stable.


A payroll loan is much easier and quicker to be eligible for compared to bank loans or small business loans (SBA). Plus, you will get the funding instantly. However, you must thoroughly study and assess the terms and regulations before you apply.


This type of loan must be your last line of defense. It is not ideal for long-term financing solution. Ensure that you understand all aspects before getting a payroll loan.



Author's Bio

Tiffany is currently taking a degree in Investment Management Analysis in her junior year in college. In the context of decision making and business strategy, she focuses on finance and information interpretation.

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