Small Business Loans

Payroll Loans

Updated: August 31st, 2023

Payroll Loans

As a small business, you are faced with a variety of obstacles and roadblocks that can impact your operations. Unexpected financial setbacks, downturns, or emergencies can leave you strapped for cash and possibly short when it comes to payday. With payroll often being the largest expenditure small businesses face, there come times when payroll loans are necessary to bridge the existing financial gap. 

With many forms of financing being able to be used as a payroll loan, employers have options when it comes to securing financial capital in order to pay their employees. While payroll loans are rather straightforward in concept and functionality, several variables must be considered and answered by a business prior to seeking a loan. 

With a payroll loan being considered a working capital expense by most lenders, which has no restriction on how the funding is specifically used, there is a lot of flexibility attached to these loan types. However, since payday loans traditionally need to be dispensed quickly and potentially deal with a significant amount of money, higher interest rates follow. This places significant responsibility on the business owner and its respective stakeholders to be calculated when applying for a payroll loan so overfunding is not an issue. 

Questions to Consider When Apply for a Payroll Loan 

You’ve determined that you are in need of a payroll loan but may still have some lingering questions as to what makes the most sense for your organization. Before applying for a loan, it is important to be intentional and thorough throughout the process. While payroll loans are processed considerably faster than other loan types and offer great freedom in use, an organization should be precise when requesting funding. 

Here are key questions to consider when seeking a payroll loan: 

  • How much capital do I anticipate needing? 
  • Is this funding gap anticipated or surprising? 
  • Will adequate natural company revenue return soon or later down the line? 
  • What is my underfunding number? 
  • What is my overfunding number? 
  • What type of repayment plan am I seeking? 
  • How quickly can I repay the loan? 
  • What terms best position my business for financial and operational success? 
  • How can I avoid the need for payroll loans in the future?

Answering these questions will help provide a roadmap for what to expect before applying for a payroll loan. When established and equipped with these insights, your business will be best suited for applying, securing, utilizing, and repaying your loan(s) as you progress through your life cycle. 

Types of Payroll Loans for Small Businesses 

When it comes to payroll loans, small businesses have options to choose from when applying for funding. Two possibilities include a bank or SBA loan. These loan avenues will traditionally offer better terms and interest rates but normally require a longer application and approval process. This translates to a longer turnaround time to receive the funding. 

The issue is that if you are seeking capital to supplement your payroll, you most likely need the funds soon. Whether your organization operates on a weekly, bi-weekly, or monthly pay schedule, securing the necessary funding in time is essential to pay your workforce and other related expenses. 

Two of the most common payroll loan types used by small businesses include: 

These funding options are often best found through accredited alternative lenders like Funding Circle, compared to conventional banks. 

Business Short-Term Loans: These loans are best used for immediate funding and companies needing quick access to cash to meet payroll demands. These loans will typically feature higher interest rates and have a shorter repayment period. Loans can range anywhere from $25,000 to $500,000. 

Business Line of Credit: This loan type is best utilized by small businesses when they expect needing to cover multiple payroll pay periods. With an expected lower interest rate compared to term loans, a line of credit can provide an organization with plenty of flexibility over an extended period of time. Line of credit can range from $5,000 to $250,000.

Qualifying for Payroll Loans as a Small Business 

Funding Circle works exclusively with small businesses like yours to help meet financial goals and requirements. We understand that payroll plays a big part in your organization’s financial operations. Getting your employees paid is a top priority for owners and stakeholders. Payroll loans are at times necessary in a business life cycle. 

We offer a range of payroll loan products that afford small businesses to meet their demands while not weighing them down with suffocating terms and repayment options. As a small business looking to qualify for a type of payroll loan, we traditionally look for: 

  • Businesses in operation for 2 years or longer
  • Minimum annual revenue of at least $400,000
  • No current federal tax liens
  • Minimum 650 FICO score(s)

While these qualifications are a starting point, our team works with small businesses of all kinds, who are all facing a variety of challenges and obstacles. If you have questions about your business profile and current financial situation, our team is happy to address your concerns. 

As payroll is not an expense a business can delay or miss, it is important to find a funding solution that works for you and your specific needs. Apply today for one of our custom-tailored payroll loan solutions, and keep things moving in the right direction. 

Written by Elevato.


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