Payday Loans For Small Businesses: Everything You Need To Know

Small business owners have many expenses, and perhaps the most consistent is payroll. The people who work for you, whether they are 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 your month is slow? You are still responsible for paying these employees on time … or you risk them leaving.

A payday loan can bridge the gap between pay and earning 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 you use them. We’ll cover your options shortly.

How do payday loans work?

While some small business loans can be used for working capital, the purchase of equipment, or the purchase of real estate, payday loans are (sometimes) designed specifically to cover salary costs. 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 a lot of full-time employees. There are sometimes financial situations (a global pandemic, for example) where you have unforeseen expenses or less income than expected, and this is when you might struggle to cover the payroll.

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

Types of loans you can use for payroll

Borrowers looking for loans to cover their salary expenses have several 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.

Plus, while apps 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 salary expenses. If you use them for specific expenses, you may qualify for a PPP loan discount. Lenders include:

Commercial loans

There are long term and short term loans available from banks and online lenders who 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 off quickly to reduce what you pay. Check out these lenders:

Merchant cash advance

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

Business credit cards

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

What to consider when choosing a payday loan

In a perfect world, you would borrow money at 0% interest, but the reality is, lenders want to take advantage of the loan. But the lower the annual 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 (maybe not, if you’re currently struggling to pay your wages), an SBA loan or bank loan might be a good choice. If you need cash now and don’t have a lot of credit, you may need to consider short-term loans or merchant cash advances.

Also, keep in mind that the faster you make your loan payments, the less interest you will pay, so figure out if 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 can vary in their eligibility criteria. Many look at your credit history and ratings to determine the interest rate they can offer you.

Others may put less emphasis 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 is a good idea to know your credit scores before you apply so that you know what types of loans you will qualify for.

How to get a payday loan

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

Typically, you will need to provide details about your business, including address, name, business structure, time spent in the business, and annual income. You will also need to provide information about yourself and any other business owner, including Social Security numbers and contact details.

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

If you are approved for a loan, read your loan agreement carefully, which will tell you the loan amount and interest rate, as well as the monthly payment. Sign the agreement, then 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.

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About Elizabeth Fisk

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