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Payroll Loans: What You Need to Know

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Payroll loans can be used by small business owners to cover employee wages. For some small businesses, there will be times when cash flow is tight, making it difficult to cover payroll. Payroll loans, which are generally approved quickly, can be short-term financing options that provide much-needed cash.

What are payroll loans for small businesses?

When small businesses run short on cash flow, they may turn to payroll loans. Payroll financing is generally available in four forms:

  • Short-term loans
  • Lines of credit
  • Invoice factoring
  • Merchant cash advances

There are pros and cons to each type of payroll loan, so it’s important to review the terms and qualifications for each to determine which is the best for your business needs.

4 types of payroll loans

Types of Payroll Financing
Type What they are
Short-term loans Funding that is typically paid back in less than a year under a repayment schedule
Lines of credit Funding that provides a set amount of money that can be accessed as needed
Invoice factoring Funding that uses business invoices as collateral for upfront cash
Merchant cash advances Funding that provides cash in exchange for a cut of future debit or credit card payments

1. Short-term loans

Short-term loans offer quick cash, but they must also be repaid relatively quickly — usually in less than a year. They likely come with repayment schedules and fixed interest rates.

These loans can be easy to qualify for because the risk to the lender is minimized by the shorter time frame. Plus, approval time can be quick. It can take less than a day to receive approval, depending on the lender.

However, these loans usually come with higher interest rates and possible origination fees. You may also face prepayment penalties for paying back your loan early. Because repayment periods are short, payments may be more than you can handle.

Where to find short-term loans
  • LoanBuilder provides loans between $5,000 and $500,000, which must be repaid along with a fixed fee in 13 to 52 weeks based on the loan amount. There are no origination fees or prepayment penalties. Payments are automatically withdrawn weekly from your business bank account. Qualifications include a minimum of $42,000 in annual revenue, at least nine months in business, no active bankruptcies and a minimum FICO Score of 620. A personal guarantee is required. Funding could come as soon as the next business day after you’re approved.
  • OnDeck offers loans for 3 to 24 months (longer than typical short-term periods) ranging from $5,000 to $250,000, with automatic daily or weekly payments. APRs begin at 29.90%, though the average APR is 62.1%, based on loans originated in the half-year ending March 31, 2022. It’s possible to qualify for early repayment, where all remaining interest is waived with no penalty or fee if you pay off your loan early. To qualify, you must be in business at least three years, have a minimum FICO Score of 625 and have annual revenue of $250,000. Funding is possible as soon as the same business day.

2. Lines of credit

Lines of credit (similar to credit cards) provide small business owners access to quick cash up to a predetermined credit limit. When repaying the amount you borrow, you pay interest on that amount rather than the total amount of the credit line.

When applying for a line of credit, you will complete a traditional loan application involving a credit review, financial documents and an annual review. Lines of credit usually come with set time frames for repaying all amounts borrowed.

Where to find lines of credit
  • Bluevine offers lines of credit up to $250,000 with interest rates as low as 6.20%. There are no prepayment, monthly maintenance or account closure fees. You can repay borrowed amounts over 6 or 12 months via fixed weekly or monthly payments. Qualifications include a minimum FICO Score of 625-plus, $10,000 in monthly revenue and at least six months in business. After you’re approved, funds could come in as few as a few hours for an additional $15 fee.
  • OnDeck offers amounts between $6,000 and $100,000 with 12-month term lengths, repaid automatically through weekly payments. APRs start at 29.90%, but the weighted average APR is 48.9%. The lender offers instant funding on credit line transactions between $1,000 and $10,000. You can pay off your credit line anytime without prepayment penalties. You must have been in business at least three years, a minimum FICO Score of 625, annual revenue of $250,000 and a business bank account.
  • American Express Business Line of Credit allows up to $250,000, which you can over 6-, 12- or 18-month terms. Monthly fee rates range depending on the term. Minimum loan amounts and fee rate ranges change based on the term you select. There are no prepayment penalties for paying off your balance early. To qualify, you must be in business for at least one year and have business revenue of $50,000 a year or $4,200 a month over the past three months.

3. Invoice factoring

Through invoice factoring, small business owners can sell their invoices to factoring companies that will advance them the funds right away. After the client pays the invoice — generally between 30 and 90 days — your transaction with the factoring company is complete.

A major drawback to invoice factoring is that the interest rate is usually higher than rates on traditional lines of credit. Also, the factoring company generally notifies your client(s) of their involvement, which may not sit well with some.

Where to find invoice factoring
  • AdvancePoint Capital offers up to $5,000,000 with receivables due in up to 90 days. You must complete a one-page application, providing your accounts receivable ledger, invoices and their terms and the names and contact information of businesses you’re invoicing.
  • Universal Funding Corporation offers $25,000 to $5,000,000 with rates as low as 0.55%. You must complete a one-page application, plus provide accounts receivables and accounts payable aging reports, among other things. Approval depends on clients’ creditworthiness. You could have funding a few hours after being approved.

4. Merchant cash advances

While not technically loans, merchant cash advances — which are generally available from non-bank lenders — provide cash in return for a certain percentage of future debit or credit card payments. To qualify, the small business must meet a minimum amount in credit card transactions per month. You also may be required to participate in an approved processing system to receive the money.

However, a merchant cash advance can be very costly for small business owners. Merchant cash advances often incur high interest rates along with large, frequent payments. You could pay back as much as 40% more than the original amount received.

Where to find merchant cash advances
  • National Funding offers advances up to $250,000, which you could receive in as little as 24 hours once approved. The lender doesn’t require collateral, upfront costs or fixed payments, and it doesn’t charge prepayment penalties. You must be in business at least one year and have monthly credit card transactions of more than $3,000.
  • Fora Financial provides advances up to $1,400,000 with no set terms and early payoff discounts. You can receive funding in as little as 72 hours. No collateral is required, but you must be in business at least six months, have a minimum of $5,000 in monthly credit card sales and have no open bankruptcies. You can apply online with three months of bank statements and three months of credit card statements.
  • Credibly allows up to $400,000 in advances for terms between 3 and 18 months. You could receive funding as soon as the same day. Fees include a monthly administrative fee of $50 and a one-time underwriting fee of 2.50% of the total advance amount. Also, rather than an interest rate, Credibly charges a factor rate that you can determine by dividing your purchased amount by your advanced amount. Qualifications include at least six months in business, a minimum of $15,000 in average monthly bank deposits and a minimum FICO Score of 500-plus.

Payroll loans: Pros and cons

Pros Cons
Can provide quick access to cash Rates can be higher than with traditional loans
Approval time for loans can be short Repayment terms can be short, resulting in high payments
Credit score requirements can be low Debt can get out of control quickly if payments aren’t made



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