Payday Loans for Small Business: Everything You Need to Know
Payday Loans for Small Business: Everything You Need to Know

Small business owners have many expenses, and payroll is perhaps the most consistent. The people who work for you, whether full-time, part-time or on contract, expect to be paid on time. But what happens when your own customers haven’t paid you or you have a slow month? You are still responsible for paying these employees on time…or you risk them leaving.

A payday loan can bridge the gap between payday and earning an income.

What is a payday loan?

Payday loans are small business loans that you can use to pay your staff. There are several types of loans that you can use; some require you to use the funds specifically for payroll, while others are more flexible in how they are used. We’ll cover your options shortly.

How do payday loans work?

While some small business loans can be used for working capital, buying equipment, or buying real estate, payroll loans are (sometimes) designed specifically to cover payroll expenses. These costs include salary, payroll taxes and benefits.

When is a payday loan a good idea?

Salary costs are probably one of your biggest expenses if you have many full-time employees. There are sometimes financial situations (a global pandemic, for example) where you have unexpected expenses or less income than expected, and that’s when you might struggle to cover payroll.

Rather than paying your staff late, which could cause panic, you can take out a payday loan to make sure everyone gets their salaries on time, and then you can pay them back when things improve financially.

Types of loans you can use for payroll

Borrowers looking for loans to cover payroll expenses have a few choices. The amount you pay in interest and fees will depend on the type of loan, your credit scores and other factors.

SBA Loans

The Small Business Administration has several loans that can be used for payroll and other business expenses, including 7(a) and microloans.

Additionally, although applications are closed for the Paycheck Protection Program (PPP), which was designed to help business owners pay staff during the worst of the coronavirus pandemic, if you received these funds, you can use them for payroll expenses. If you use them for specific expenses, you may qualify for PPP loan forgiveness. Lenders include:

Business loans

There are long-term and short-term loans available from banks and online lenders that can help you with salary expenses. The higher your credit scores, the lower the rates you can get.

Be aware that some short-term loans have high interest rates, so focus on paying them back quickly to reduce what you pay. Check out these lenders:

Merchant Cash Advance

Although cash advances can be expensive, they can also be useful when you need the money. yesterday to pay your team. Rather than a loan, it is an advance on future sales. Your payment will be automatically taken from credit and debit card transactions daily or weekly. Here are the cash advance companies we recommend:

Business credit cards

While not ideal for paying salaries, a business credit card can help you cover other expenses, like inventory or office supplies, freeing up your money to pay your staff. Here are a few :

What to consider when choosing a payday loan

In a perfect world, you would borrow money with 0% interest, but the reality is this: lenders want to profit from the loan. But the lower the annual percentage rate you pay, the less the payday loan will cost you in the long run.

Examine both your business and personal credit scores to see what type of financing you will qualify for. If your credit is great and you can wait a few months for your loan proceeds (perhaps not, if you’re currently struggling to pay your paycheck), an SBA loan or bank loan might be right for you. If you need money now and don’t have good credit, you may need to consider short-term loans or merchant cash advances.

Also, remember that the sooner you make these repayments, the less interest you’ll pay, so consider whether you can afford to pay off your loan sooner and see if your lender charges a penalty fee for doing so.

How to qualify for a payday loan

Lenders may vary in their eligibility criteria. Many look at your credit history and ratings to determine what interest rate they can offer you.

Others may focus less on your credit and may instead look at how long you’ve been in business and your annual income, which gives an indication of your ability to repay on time.

It’s a good idea to know your credit scores before you apply so you know what types of loans you’ll be eligible for.

How to get a payday loan

The loan application process for a payday loan may be different from one lender to another. Banks may require you to visit a branch to apply, while other lenders may offer a quick online application.

Typically, you’ll need to provide details about your business, including address, name, business structure, length of time in business, and annual revenue. You will also need to provide information about yourself and any other business owners, including social security numbers and contact information.

You may also be asked to connect your bank account so that your loan funds can be deposited quickly (sometimes as early as the next business day).

If you are approved for a loan, carefully read your loan agreement, which will tell you the loan amount and interest rate, as well as the monthly payment amount. Sign the agreement and wait for the funds to arrive in your account for these employees to be paid.

Nav’s Verdict: Payday Loans

Rather than struggling to pay your employees, taking out a payday loan can be a great way to make sure everyone gets paid on time and feels safe in your business.

This article was originally written on August 9, 2021 and updated on October 19, 2021.

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