Here’s What You Need to Know About Payroll Loans

payroll loans

Is your business facing some temporary cash flow problems? It’s definitely not uncommon for businesses to experience cash flow deficiencies when they’re waiting on overdue payments from customers or dealing with unexpected expenses. While there are ways to mitigate cash flow problems so they don’t happen or don’t happen as often, that’s little help when your employees’ payday is approaching and you don’t have the money to pay them.

A payroll loan could get you out of that tight spot by providing the funding you need to pay your employees and cover the costs of their benefits and payroll taxes. There are a few different types of payroll loans you can choose from, including short-term loans, invoice factoring, and business lines of credit. Here’s what you need to know to make payroll loans work for your business.

Understanding the Types of Payroll Loans

There are three main types of payroll loans available to businesses: short-term loans, invoice factoring loans, and business lines of credit. You can get a short-term loan in amounts up to $250,000 with repayment periods of less than 36 months. Often, repayment terms for short-term loans range between three and 18 months. Short-term loans also require more frequent payments than longer-term loans. You’ll have to make payments weekly or maybe even daily if you go this route. But you’ll be able to get your money fast, within a few days, so you’ll be able to make payroll immediately.

Invoice factoring presents a way to get money from your unpaid invoices. You’ll basically sell your unpaid invoices to a lender who will give you 60 to 95 percent of their value. You’ll get a fresh cash infusion, and you won’t have to pay it back because the lender gets their return from collecting on the invoices. There may, however, be factoring fees and interest rates applied. Invoice factoring is a good option for businesses that haven’t been operating long enough to qualify for a more traditional business loan.

A business line of credit is the third option. A business line of credit gives you ongoing access to cash up to your credit limit. Repayment terms can go up to five years. There might be fees associated with each cash withdrawal, but interest rates for these types of loans can be more competitive.

Where to Get Payroll Loans

You can get payroll loans from traditional lenders like banks and credit unions, but the underwriting process for these loans can take weeks and that’s no good when you’ve got to cut paychecks next Friday. Some credit unions may offer fast short-term business loans and lines of credit. You can use peer-to-peer lending to borrow from a direct lender online. 

However, for most business owners with cash flow problems, an alternative online lender is the best place to go for a payroll loan. With an alternative lender, you can apply online, get approved in seconds, and get the money in just a few days. Interest rates tend to be high, but alternative lenders are often willing to consider startups and new companies or business owners with bad credit. 

How to Get Payroll Loans

How do you get a payroll loan? First, you need to find an online lender that offers fast financing for small businesses. That’s not as hard as it sounds – there are lots of alternative online lenders giving out loans these days. If you have a low credit score – say, under 600 – then you need to find a lender willing to work with bad credit borrowers. There are plenty of online lenders who are willing to lend to business owners with lower credit scores.

Once you have found a lender, simply fill out the application online. You don’t usually have to put up collateral for a short-term business loan or payroll loan. However, you should be prepared to pay a higher interest rate than you might for a traditional loan.

You’ll usually get to know if you were approved for the loan right away. Sometimes approval can take up to 24 hours. Once you’ve been approved, funds will be transferred into your bank account within 48 hours. So, if you need to make payroll on Friday, you can apply for a payroll loan on Monday and still get the money on time.

When your business has cash flow problems, a payroll loan can help. Payroll loans help you make sure your employers are taken care of, and you can use them for other business expenses as well. Don’t let cash flow problems take down your business. Apply for a payroll loan instead.

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