Business Loans

Payroll Financing: Small Business Loans To Make Payday

Mar 30, 2023 • 7 min read
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      While there’s no specific loan product called a “payroll loan” for small businesses, there are several business financing options available that can be used to cover payroll expenses. This allows you to keep your operations running smoothly, even if you’re experiencing short-term cash flow issues.

      Benefits of Payroll Financing

      Covering payroll is one of the top four reasons business owners get a loan with Lendio. 

      Getting funding for payroll takes the worry out of supporting your employees each month when your cash flow is inconsistent. It’s usually short-term financing that helps you bridge the gap on your payroll expenses, whether you’re a seasonal business or simply have a long accounts receivable timeline. 

      There are a few different types of payroll financing. Some are better suited for certain types of businesses than others. So it’s smart to explore each option and find the one that makes the most sense for your unique company.

      There are several perks to getting a business loan through Lendio to cover payroll costs, including:

      • Multiple options for different stages of business – Choose a financing structure with repayment terms that work for you. There are many options out there, whether you’re a new business or already established. 
      • Easy application process – Lendio’s 15-minute application process is quick and easy to complete.
      • Quick funding times Depending on the lender, you could get approved and funded in just a few business days (sometimes even less). No matter how unexpected your financing needs may be, you can solve the problem in very little time. 

      4 Types of Financing For Covering Payroll

      Here are common options to explore for payroll financing. 

      Term LoanLine of CreditCash AdvanceInvoice Financing
      Funding AmountUp to $500,000Up to $250,000Up to $1 millionUp to 90% of receivables
      Term Length6 months – 12 years6-24 months1-15 months30-180 days
      Funding TimeAs soon as 24 hoursAs soon as same dayAs soon as 24 hoursAs soon as same day

      Term Loans

      A term loan provides you with a lump sum that you can use as working capital to support your company’s payroll and even other expenses, if you choose. The interest rate and monthly payments are both fixed, making it easy to budget for.

      Compared to other financing options, a term loan’s interest rate can be much lower. Plus, the online application is typically fast, and you’ll enjoy a quick funding time once approved.

      How to Qualify

      In order to apply for a term loan, your business must be at least six months-old. There’s also typically a minimum personal credit score requirement that starts at 600, and your company’s monthly revenue needs to be a minimum of $8,000.

      Lenders will also want to see a strong financial track record that demonstrates your ability to repay the loan. If you’re a well-established business with solid financials and credit, then you could have a good chance of getting approved for a term loan to cover payroll gaps.

      Line of Credit

      A business line of credit (LOC) is a great option for payroll financing because you draw funds from your LOC only as you need them. If your cash flow issues aren’t consistent, a LOC acts as a convenient safety net.

      And once you repay your balance, your available credit replenishes. You can borrow funds again the next time you need to cover payroll or other operating expenses. Plus, you only accrue interest on the drawn funds, instead of one large lump sum.  

      How to Qualify

      To qualify for a line of credit, the minimum time in business requirement starts at six months. Annual revenue must be at least $30,000, and the minimum credit score to apply is just 600.

      You can opt to apply for two types of lines of credit: secured or unsecured. With a secured LOC, you offer some type of collateral. Because of this extra layer of security for the lender, you may qualify for lower rates and a larger credit line. An unsecured LOC, on the other hand, doesn’t require you to risk any assets, but you’ll likely pay more for the credit line and qualify for a smaller amount.

      Cash Advance

      A cash advance lets you borrow against your business’ future revenue. It’s an option that relies more on your business finances than your personal credit score. Plus, a cash advance comes with a quick funding time. 

      The repayment process is unique, however, and can vary. In some cases, your lender automatically withdraws a fixed daily percentage from your bank account. In others the lender will withdraw a fixed dollar amount daily or weekly. In the case of a merchant cash advance, the lender requires a fixed daily percentage of your credit card receipts. The repayment process continues until the full borrowed amount—plus a factor rate charged by the lender—is paid in full. 

      How to Qualify

      In order to apply for a cash advance, you’ll need between four and six months of bank statements or receivables. The application itself typically takes just 15 minutes. Although the cost may be higher than those of other payroll financing options, you likely don’t need to provide any collateral. Eligibility is primarily based on your sales, along with a minimum credit score starting at 500 and time in business requirement starting at three months. 

      Invoice Financing

      Another option for covering payroll costs is invoice financing (also called accounts receivable financing). It’s similar to a cash advance except that, instead of basing your funding on future sales, it’s based on your business’ unpaid invoices.

      You can apply to borrow up to 80% of your outstanding receivables, which can include inventory and purchase orders, in addition to invoices. Once your invoices are paid, you repay the balance to the lender, plus a factor fee of around 3%. 

      How to Qualify

      Eligibility requirements center around your receivables rather than your credit score or other factors. Plus, you can qualify with a shorter time in business requirement of no minimum to one year.

      Stop worrying about meeting your payroll each month by finding the right financing solution for your business. Learn more about small business loans through Lendio.

      Quickly compare loan offers from multiple lenders.

      Applying is free and won’t impact your credit.

      The information provided is accurate at the time of the initial publishing of the page (INSERT DATE). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application.

      About the author
      Lauren Ward

      Lauren Ward is a personal finance and tech writer with a passion to help consumers make smart financial decisions. Her work has appeared in a variety of publications, including Time and MSN. When she's not writing, she loves gardening and playing board games with her family.

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