Payroll loans for small businesses: 6 options (plus helpful tips)
Sometimes as a small business owner, payday approaches and you realize you are short on the cash you need to pay your employees. This doesn’t automatically mean your business is struggling – it happens in periods of high growth as well. However, it’s a problem that payroll loans for a small business can solve. Read on to learn more about these loans and find some tips for making payroll.
What is a payroll loan?
A payroll loan is an umbrella term that includes the many types of small business loans, including private short-term loans and government-backed long-term loans that can be used to cover payroll..
How do payroll loans work?
The way payroll loans work varies by loan type. For example, if you’re using a merchant cash advance to cover your payroll expenses, you might repay your loan in daily increments. That’s a very different model than if you were to use SBA 7(a) loans for payroll financing where you’ll repay your loan in predictable monthly installments over a longer period of time.
Another thing to consider: With payroll loans, you might need funding sooner than later to pay your team. If that’s the case, your options might be limited to loans that offer rapid funding – and these loans often have terms that are unfavorable. You might get saddled with high interest rates and short repayment periods, resulting in higher monthly payments compounded by those high interest rates. If possible, it’s generally best to get a borrower-favorable loan, even if you have to wait longer for your funding.
6 payroll loan options for your small business
Whether you need to pay your employees tomorrow or you’re putting a fallback plan in place for future potential cash flow issues, you may have options. The below financing options may work wonders as payroll loans for your small business.
1. SBA 7(a) loans
SBA 7(a) loans are often considered the gold standard by small business funding experts. These government-backed loans come with long repayment periods, low interest rates, and high potential loan amounts. With SBA 7(a) working capital loans, you can cover payroll without generating a mountain of extra debt that needs to be repaid quickly.
Speaking of quick, SBA 7(a) loans have one considerable drawback when it comes to payroll loans. Namely, if you desperately need to pay your employees now, you can’t quite do that with SBA 7(a) loans. Completing, filing, and hearing back on your loan application can take a month – sometimes more. That said, if you qualify for SBA 7(a) loans, they’re a fit in every other way. And if you can wait to cover your expenses, you’ll be grateful you didn’t incur short repayment terms and high interest rates.
Below are some quick facts about SBA 7(a) loans.
Loan amount: $30,000 to $350,000
Repayment period: 10 years
Repayment schedule: Monthly
How long you’ll wait for funding: Typically at least 1 month