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When The Banks Say NO.com

How to Finance Your Payroll as a Small Business Owner
When the Banks Say "NO"!

Providing Payroll Finance Solutions

Payroll financing” is a financial solution designed to help small business owners cover payroll expenses when cash flow is tight. This type of financing allows businesses to borrow money specifically to pay their employees on time, ensuring that payroll obligations are met even if there is a temporary shortage of funds.

This type of financing can be especially useful for small businesses that have seasonal revenue fluctuations or face unexpected expenses but still need to meet payroll deadlines. It helps maintain employee morale and business operations while the owner works on stabilizing cash flow.

Solutions for financing payroll for your company

How Payroll Financing Works

Loan or Line
of Credit

A business may receive a loan or establish a line of credit specifically for payroll purposes. The lender provides the funds needed to cover payroll, and the business repays the loan or draws from the line of credit as needed.

Construction company owner seeking payroll finance

Commercial
Invoice Factoring

In some cases, payroll financing can be tied to invoice factoring. The business sells its accounts receivable (unpaid invoices) to a factoring company at a discount in exchange for immediate cash. This cash is then used to cover payroll.

Repayment
Terms

The repayment of the borrowed funds is usually structured based on the business’s cash flow, often aligning with when the business expects to receive payments from customers or clients.

Short-Term
Solution

Payroll financing is typically a short-term solution, used to bridge gaps in cash flow until the business can collect payments from clients or generate sufficient revenue.  Factoring, however, provides a longer term solution.

Payroll Financing Options

Representative at When the Bamks Say No!

Short-Term Business Loans

  • Description: These are loans specifically designed to meet immediate cash flow needs, including payroll. They typically have a quick approval process and shorter repayment periods.
  • Cost: Interest rates can be higher than long-term loans, but they are generally more affordable than other emergency funding options.
  • Best For: Businesses with stable revenue that need temporary cash flow support.

Business Line of Credit

  • Description: A business line of credit functions like a credit card. The business is approved for a certain credit limit, and they can draw on this credit as needed, paying interest only on the amount borrowed.
  • Cost: Generally more affordable than short-term loans, especially if the business only borrows what it needs and pays it back quickly.
  • Best For: Businesses with fluctuating cash flow that may need flexible access to funds for payroll and other expenses.

Merchant Cash Advances (MCA)

  • Description: An MCA provides a lump sum of cash in exchange for a percentage of future credit card sales or a portion of daily revenue. It’s not technically a loan but a cash advance against future earnings.
  • Cost: Can be expensive due to high fees and the percentage taken from daily sales, but it provides quick access to funds.
  • Best For: Businesses with high and consistent credit card sales.

SBA Microloans

  • Description: The U.S. Small Business Administration (SBA) offers microloans through intermediary lenders, which can be used for working capital, including payroll. These loans typically have favorable terms and interest rates.
  • Cost: Low-interest rates and favorable terms make SBA microloans a cost-effective option, though the application process can be more involved.
  • Best For: Small businesses that can qualify and are looking for affordable, government-backed financing.

Business Credit Cards

  • Description: Using a business credit card to cover payroll can be an option if you have a high enough credit limit. Some cards offer 0% APR for an introductory period, making them temporarily affordable.
  • Cost: Interest rates on credit cards can be high after the introductory period, so this is best used as a very short-term solution.
  • Best For: Very short-term cash flow needs when other options aren’t available.

Peer-to-Peer (P2P) Lending

  • Description: P2P lending platforms connect business owners directly with investors willing to lend money. These platforms often have lower interest rates compared to traditional loans and can offer a faster application process.
  • Cost: Interest rates vary but can be lower than traditional lenders, especially if the business has a good credit history.
  • Best For: Businesses looking for an alternative to traditional bank loans.

Personal Loans

  • Description: In some cases, business owners may choose to take out a personal loan to cover payroll. While not ideal, this can be a more affordable option than high-interest business loans.
  • Cost: Interest rates can vary based on creditworthiness, but personal loans may be more affordable than some business financing options.
  • Best For: Business owners with good personal credit who need a quick, low-cost solution.

Online Lenders

  • Description: There are many online lenders that specialize in quick, short-term loans for small businesses. They offer fast approval and funding but often come with higher interest rates.
  • Cost: Generally more expensive than traditional loans but can be cheaper than merchant cash advances.
  • Best For: Businesses needing quick access to cash with limited options for traditional financing.
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