Payroll loans

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on July 11, 2024. Next review due October 1, 2025.

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    For many small businesses, their employees are their most valuable assets and keeping these workers happy is key to long-term success. Paying staff on time is an essential part of this process. Payroll loans are designed to help you meet your wages bill when your cash flow is weak, seasonal, or erratic.

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      What is a payroll loan?

      A payroll loan is short-term business financing to cover the wages and benefits of a company’s employees. More often available from online and non-traditional lenders than banks and credit unions, payroll loans may be obtained at short notice and with minimal paperwork, although borrowing costs could be higher than other business financing. 

      Typically used when business cash flow is tight, payroll loans can give organizations the funds to pay their workers and avoid damaging the goodwill between business owners and their staff.

      What are the different types of payroll loans?

      There are several types of payroll loan. Some function like a credit card, while others use your sales receipts and unpaid invoices as loan security and there’s no need for additional collateral.

      Short-term business loans

      The simplest type of payroll loan. Based on the strength of your revenues, cash flow forecast and credit history, you receive a single, lump-sum cash injection and then pay it back in regular instalments, with short terms of usually a year or less. Collateral may be required.

      Business line of credit

      Also called a revolving line of credit, this type of payroll financing functions like a high-value credit card but comes with lower interest rates and fees. Businesses can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing. You only pay interest on the sums that you withdraw. Interest rates are usually fixed, and your business may repay on a set or flexible schedule. Collateral may be required.

      Invoice financing

      Also known as account receivables financing, invoice financing allows small businesses to borrow against the value of their unpaid invoices. The lender may provide up to 95% of the invoice value within a few days or even hours of the bill being raised. Your invoices act as security, no added collateral is required.

      Merchant cash advance

      Available for businesses that accept customer payments by credit and debit card. You borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security, no added collateral is required.

      Revenue financing

      Functions like a merchant cash advance but with higher borrowing limits. Based on the size and regularity of their total revenues, (not just their credit card sales), organizations may receive a lump sum and pay it back over a short-term schedule, typically by small deductions from their daily sales.  Once again, your sales act as security, no added collateral is required.

      Top tip: Merchant cash advances and revenue-based payroll loans can usually be secured very quickly as qualification rules are less intensive and credit scores are not so critical.

      Where can I find payroll loans?

      Payroll loans are usually obtained from online and non-traditional lenders, although some banks and credit unions may also offer this type of financing. 

      As a rule of thumb, online loan providers are faster to approve loan requests than traditional lenders and they will typically have a simpler, more streamlined application process.

      However, no matter which route you choose, you should always shop around for payroll loans before settling on a deal. You can do this by approaching online lenders, banks and credit unions one by one, or you can use the services of a loan marketplace that will introduce you to a choice of loan deals from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for small business owners who have never taken out a payroll loan before.

      How to avoid payroll loans

      Payroll loans can be significantly more expensive than regular business financing, so avoid this type of emergency funding if you can. Important steps to take to ensure you never struggle to meet payroll include:

      • Conduct a business cash flow analysis to time your income and outgoings better
      • Maintain sufficient cash reserves to cover emergency expenses
      • Request immediate payment terms from your customers – or consider offering them a small discount for faster payment
      • Use automatic billing options if possible
      • Follow up with overdue customers promptly and collect late-payment fees as per your T&Cs
      • Anticipate seasonal inconsistencies with long-range cashflow forecasting
      • Don’t pay your supplier bills early if there’s no advantage. You may need the capital elsewhere

      As well as these actions, you should seek ways to reduce your expenses without harming your customer service or product quality. Additionally, many small businesses continue to offer products and services even when they know these items are costing them more money than they are worth. Review your product and service offerings on a regular basis. Retire those items that are not delivering a strong profit and plow your time and effort into those that are selling well.

      What are the pros and cons of payroll loans?

      Like all financial products, payroll loans come with some advantages and disadvantages:


      • Fast processing: Many payroll loan providers offer quick loan approvals and fast disbursement of funds – often within a day or two of application.
      • Flexible payments: Payroll loans can be tailored to suit your business income stream – pay the loan back on a daily, weekly, bi-weekly or monthly basis.
      • Keep your workers happy: One of the worst things an organization can do is miss their payroll run, as this can undermine employee morale. Payroll loans ensure your staff get paid on time.


      • Higher fees and interest: Payroll loans are a type of short-term financing that typically comes with higher borrowing costs than you may pay with standard business loans.
      • Repayment difficulties: Some payroll lenders may let business owners borrow more than they should, making repayment difficult. This isn’t just bad for your business. The penalties for missed payments on some payroll loans can also be expensive.

      What are the requirements for payroll loans?

      To qualify for a payroll loan, businesses will need to meet the eligibility criteria of the lender they are applying to. These rules will vary from one funding source to another, but the three critical factors are length of time in business, annual revenues, and your personal and/or business credit score.

      Generally, the longer you’ve been in business, the higher your revenues are and the better your credit score, the better your chances of securing a payroll loan. However, even if you’re a start-up, have few revenues and a credit history that’s less than perfect, there may still be options to obtain the funding your organization needs. Simply contact Swoop to confidentially discuss your business borrowing needs with a payroll loan expert.

      What are the alternatives to payroll loans?

      As well as the options shown above, you may be able to get a loan to cover payroll from:

      • SBA Microloans and Community Advantage loans:  SBA Microloans are available up to $50,000 and may be secured with FICO scores as low as 500, or even with no credit score at all. However, these loans often require collateral or a personal guarantee that makes you personally responsible for the debt, not your business. Community Advantage loans function much like regular SBA 7a business loans but come with a maximum of $350,000 and other features that may make them easier to secure.
      • Personal loans: If you can’t obtain business finance to cover payroll, you may be able to get a personal loan. Lending to individuals is usually based on the borrower’s personal FICO score and provides less funding than a business loan, but some lenders may have more relaxed qualifying rules for personal finance, making approval easier. 

      Get started with Swoop

      No matter if you’re seeking your first payroll loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for your funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality payroll loans from a choice of lenders. Make sure you never miss a payroll date again. Register with Swoop today.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

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      At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.

      Find out more about Swoop’s editorial principles by reading our editorial policy.



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