Payroll Loans: What They Are, Types and Best Options
A payroll loan can save the day when you’re short on cash to pay your employees, but they may be expensive.
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Seasonal dips, late-paying customers or unexpected expenses can all put pressure on your cash flow and make it difficult to pay your employees on time. If you’re short on cash and payday is approaching, a payroll loan can provide the funding you need to cover employee wages.
What is a payroll loan?
A payroll loan is a type of short-term financing that you can use to pay your employees. In addition to salaries and wages, these loans can also be used to cover commissions, bonuses, payroll taxes and employee benefits.
Payroll loans are typically issued by online lenders, who can provide funding quickly, often within 24 to 48 hours. As a result, however, these loans may have higher interest rates than more traditional business loan options.
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Tell us how much you need and see your options in minutes.Types of payroll loans
There isn’t a single loan designed specifically for payroll. Instead, several types of business financing can help cover employee wages. The best option for you, however, will depend on your individual needs and qualifications.
Short-term business loans
Best for: General payroll needs.
Short-term business loans provide a lump sum of cash that you repay over time, with interest. These loans typically have repayment terms from six to 24 months and require daily or weekly payments.
Short-term loans can be a good option for covering one-time, specific investments in your business, like making payroll.
Business lines of credit
Best for: Flexible funding; covering emergency expenses.
A business line of credit allows you to pull money when you need it, up to a set limit. You only pay interest on the amount you draw, and once you repay what you’ve borrowed, you can continue to draw on the line.
Because of their structure, business lines of credit are a more flexible financing option than traditional term loans — making them a good option for unexpected expenses.
Invoice factoring
Best for: Business-to-business companies who experience cash flow gaps as a result of unpaid customer invoices.
Invoice factoring involves selling your invoices to a factoring company at a discount. In exchange, you receive a percentage of the invoice amount upfront. After your customer pays the factoring company, you’ll receive the remaining amount, less a service fee.
Because qualification is largely based on your customers’ creditworthiness and the value of your invoices, factoring can be easier to access than more traditional financing options.
Merchant cash advances
Best for: Businesses with a high volume of credit card sales; those that can’t qualify for other options.
A merchant cash advance, or MCA, isn’t technically a business loan. Instead, an MCA company gives you an upfront sum of capital that you repay using a percentage of your debit and credit card sales, plus a fee.
This type of financing is easy to qualify for and fast to fund, but can be expensive. Generally, you should consider all other options before opting for an MCA.
When to consider a payroll loan
Cash flow issues can make it difficult to pay your employees on time. Here are some situations where you might need to consider a payroll loan:
- Not receiving timely payment from customers.
- Encountering unexpected expenses.
- Experiencing an offseason reduction in revenue.
- Holding too much inventory.
- Dealing with natural disasters or other business disruptions.
Best payroll loan options
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| Product | Max loan amount | Min. credit score | |
|---|---|---|---|
 Bluevine - Line of credit Nerdwallet Rating with Fundera by NerdWallet | $200,000 | 625 | with Fundera by NerdWallet |
 Fora Financial - Online term loan Nerdwallet Rating with Fundera by NerdWallet | $1,500,000 | 570 | with Fundera by NerdWallet |
 Fundbox - Line of credit Nerdwallet Rating with Fundera by NerdWallet | $250,000 | 600 | with Fundera by NerdWallet |
 Giggle Finance - Merchant cash advance with Fundera by NerdWallet | $10,000 | 300 | with Fundera by NerdWallet |
 OnDeck - Online term loan Nerdwallet Rating with Fundera by NerdWallet | $400,000 | 625 | with Fundera by NerdWallet |
 AltLINE - Invoice factoring Nerdwallet Rating with Fundera by NerdWallet | $5,000,000 | 300 | with Fundera by NerdWallet |
How to get a payroll loan
Follow these basic steps to get a payroll loan for your small business:
1. Determine your financing needs
Start by figuring out how much money you need to cover your payroll costs — and how quickly you need it.
2. Review your qualifications
Consider common business loan requirements, like personal credit score, annual revenue and time in business, to see where you stand before applying.
3. Compare lenders
Research multiple options to find the best financing for your needs. When looking at different payroll loans, compare factors such as:
- Maximum funding amount.
- Repayment terms.
- Payment frequency.
- Interest rate and fees.
- Qualification requirements.
- Funding speed.
- Lender reputation.
4. Submit your application
Gather all of your documentation before applying to speed up the process. You’ll likely need to provide business bank statements, financial statements and tax returns. If you’re applying for invoice factoring, you’ll need to include your outstanding invoices. If you’re applying for an MCA, you may need to provide statements from your payment processor that show your typical credit card sales.
5. Review your loan agreement and receive funds
Once you receive approval, your lender will send you a loan agreement to review and sign. Read through it carefully and make sure you understand all of the terms and conditions. If you have any questions or concerns, reach out to your lender for clarification.
After you sign the agreement, your lender will transfer the funds to your business bank account. You can then use those funds to make payroll.
How to avoid payroll loans
Addressing cash flow issues can help you avoid payroll emergencies and the additional costs associated with financing the funds you need. Creating a cash flow forecast to estimate the amount of money flowing into and out of your business can be helpful in budgeting for payroll costs.
While raising prices, reducing expenses and eliminating waste may be the most common ways to increase the cash you have on hand, here are some other things you can consider:
- Offer credit terms only to customers who have demonstrated their creditworthiness.
- Accept credit cards and other electronic payments options.
- Offer a discount to customers who pay their bills early.
- Ask your suppliers to extend your payment period, if possible.
- Set money aside in a cash reserve account for emergencies.
- Budget for seasonal fluctuations in revenue and expenses.
- Consult an accountant or other financial professional.
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