7-min read Feb 24, 2022

Is A Small Business Loan For Payroll Right For You?

Is A Small Business Loan For Payroll Right For You?

If you own a business that gets paid immediately and doesn’t experience seasonal shifts in revenue, you’re far less likely to encounter major cash flow issues. However, if your business collects payments for services rendered up to 30, 60, or 90 days after the invoice date, you’ll likely struggle to have cash on hand when you need it. Consequently, your business may need to find solutions to pay for everyday business expenses, including payroll.

Payroll is one of the largest expenses that can create cash flow issues for businesses that experience delayed payments. Why? Because employees expect to be paid on time. Whether your employees get daily, weekly, biweekly, or monthly paychecks from your business, you have to ensure that there’s money in your account to cover the cost of payroll.

What Is A Small Business Loan For Payroll?

A small business loan for payroll goes by many different names. Whether you call it payroll financing, payroll funding for small business owners, or a standard business payroll loan — it all refers to the same thing. A small business loan for payroll is simply an injection of cash to cover payroll expenses while you wait for invoices to be paid.

Typically, this is considered a short-term business loan, as you will have a specific timeline to pay it back. This makes it ideal for businesses that need a quick injection of cash to cover payroll. This way, you can continue doing business as usual, even when your customers and clients take weeks or months to pay their bills.

Who Is Payroll Financing For?

Business loans for payroll are designed for businesses that already have established revenue. Perhaps you’ve been in business for years or even decades, but either way, you have a client base that consistently makes payments to your business. Your problem is not a lack of income, but rather an inconsistent payroll cycle.

If you’re searching for small business loans to cover payroll, it doesn’t mean that you’re way behind on your payroll obligations. You might just need one day, a few days, a few weeks, or over a month until your next payments come in. The point is that there is a disparity between the time when you need to pay your staff for their work and the time that your clients actually pay your business for your work. Without the help of a payroll funding company, this situation could leave you with major cash flow issues.

Short-term cash flow issues arise for a number of reasons, from seasonal fluctuations in your industry and revised payment terms to business scaling and a sudden increase in payroll expenses. In any case, payroll financing solutions are for businesses that can confirm that revenue is coming in, but cannot maintain a steady cash flow because they cannot know exactly when payments will arrive.

For example, many staffing companies find themselves in need of payroll financing. This is due to the fact that these companies provide businesses with short-term staffing solutions. However, the businesses in need of staff are often not required to make any payments until a set date in the future, while the temporary employees have to be paid on time by the staffing company. This can force many staffing companies into an uncomfortable position, in which all of their available funds go to payroll costs, and they are forced to wait for their clients to pay for their staffing services at a later date.

Naturally, this is just one of many examples. In truth, payroll financing is ideal for a wide range of companies and industries — from profitable startups to well-established businesses. Any of these commercial enterprises can suffer from occasional or even recurrent cash crunches. Consequently, these businesses may need a quick infusion of cash to help them cover their payroll costs.

Who Is Payroll Financing Not For?

While there are thousands and thousands of businesses that could benefit from payroll financing, business payroll loans are not designed for everyone. For example, if your business needs a cash influx to help pay for payroll costs in anticipation of potential revenue, payroll financing is not the solution for you. This is because a small business loan for payroll is specifically designed to cover employee costs while a business waits for confirmed payments; it is not a way for businesses to get funds for speculative projects.

And while payroll financing can help businesses that experience seasonal cash crunches, it cannot help brand new businesses without established revenue or even existing businesses that simply want to invest in a new short-term project. Businesses that want to scale and use the projected revenue of their efforts to pay back the loan will not qualify for payroll financing. These types of companies must seek out business funding from a different source, as payroll financing loans are specifically designed to meet immediate staffing needs and bridge the gap between the moment you pay your employees and the moment your clients pay you.

Finally, it’s important to note that small business loans for payroll function exactly as their name implies. These short-term loans cover payroll costs — not general business expenses. So, if you find that you’re lacking funds to cover marketing, real estate, or even legal fees, you need to seek out business funding elsewhere. Payroll financing is not meant for businesses that just need cash to enhance their business as a whole. Instead, it is a temporary measure to ensure that employees can get paid on time, even when your business cannot.

The Bottom Line

It´s important to remember that periodically thin cash flow isn’t always a sign of a struggling business. Some companies have extended payment terms, while other businesses are more seasonal in nature, and still others are scaling rapidly and need a funding solution to help them keep up with their growing team. However, the key to determining whether or not your business qualifies for payroll financing is the validity and consistency of your revenue.

If you don’t have established revenue, you need funds for non-payroll expenses, or you want to leverage cash in the hopes of growing your future revenue, payroll financing is not the solution for you. Instead, you may be better off seeking out a traditional business loan through a standard lending institution.

Do you have established clients who pay for your services regularly? Are you scaling your business because of increased revenue and need temporary funds to keep up with the increased staffing costs? Or are you experiencing a temporary cash crunch due to seasonal changes? If you answered “yes” to any of these questions, then you likely qualify for a small business loan for payroll.

At Payro Finance, we are dedicated to providing the short-term funds that businesses need to keep their staff paid on time. For many companies, these payroll financing loans are vitally important to keep their businesses running at full capacity. Without having to worry about how they’re going to make payroll, our clients are able to focus more on growing their company and planning for the future.

So, is a small business loan for payroll right for you? If you’re interested in learning more about the advantages of payroll funding, feel free to reach out to Payro Finance today!

Morris Reichman


Morris Reichman is the founder and CEO of Payro Finance. Former Vice President at Infinity Capital Funding an alternative finance company, Morris possesses a versatile background in the finance industry. Having spent 7+ years working across global macro operations and start up corporate finance Morris's expertise is in business accounting, risk management and investment analysis. Morris founded Payro Finance to support business owners and ensure their business continuity.

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