Payroll Loans
If you’re looking to raise funds quickly, you could take a secured or unsecured payroll loan. Get the best deal with ABC Finance.
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in payroll loans
Payroll loans are a form of short term finance designed to cover wage bills when a business has temporary cash flow issues.
This type of loan is especially useful for seasonal businesses that have peaks and dips in finances, or have money tied up in stock and investments that are not easily accessible.
What is a payroll loan?
A payroll loan covers wage and benefits payments for employees in the absence of the business cash flow to meet the payments. Payroll loans are provided by non-traditional niche lenders, rather than traditional lenders such as banks.
Whilst a payroll loan is similar to a business cash flow loan there are differences, namely it is specifically designed to cover payroll requirements in the immediate term rather than wider business expenses.
How quickly can payroll financing be arranged?
Finance can be arranged quickly, often within 24 hours of application and in some cases within several hours.
This is a flexible type of short term finance with a number of options depending on your circumstances.
What are the different types of payroll loans?
Unsecured Loans
Unsecured loans are a type of credit that isn’t based on assets such as machinery, property or stock. Lenders will assess the creditworthiness of a business and the likelihood that they will be able to pay back the loan. Unsecured loans are often shorter term arrangements.
This type of loan is considered to be of a higher risk as the lender does not have certainty the payments could be met, or that they will receive their money if the business defaults on the arrangement. Unsecured loans ordinarily have higher interest rates than secured loans.
Secured Loans
Secured business loans are based on assets or ‘collateral’ so the lender will have confidence that monies can be recouped if the business defaults on payments. Often assets such as property, or merchandise are used to secure loans.
Interest rates on secured loans are often lower as there is a guarantee that the lender will get their money back; however, with long term secured loans interest rates can be higher as a lender is tying up funds for a long period.
Revolving line of credit
This is a flexible financing option where businesses can borrow, repay, and re-borrow up to a pre-approved limit as and when they need it.This type of debt facility is commonly left open by lenders as long as the account is managed well.
Many businesses find revolving credit useful as once it is set up there is no need to seek approval to use funding as opposed to loans that need to be applied for separately each time they are required.
A Merchant Cash Advance (MCA)
A Merchant Cash Advance is a form of credit, however it is only available to businesses that accept debit and credit card payments. Finance is provided in exchange for a percentage of credit and debit card sales revenue. It should be noted that there may also be additional fees to pay when entering into an MCA agreement.
Invoice finance and factoring
This allows you to use your outstanding invoices to secure financing. Factoring is where a lender will pay you directly and take ownership of the invoices, they will collect the payment and keep the payment. With invoice factoring the lender will take a fee for providing the service or a percentage of the invoice amounts.
Invoice discounting is part of the invoice finance range of options and this is where the buyer pays promptly for a discount on goods or services. Invoice financing can help a business maintain cash flow if payments are outstanding for a long time and money is required urgently.
Short term business loans
Short term financing is designed for businesses with an immediate need for funds.
Typically a short-term loan will range from three to 18 months, although some lenders may offer repayment periods up to two years in duration. Short term loans come in two forms, secured against collateral or unsecured. The latter will only usually be offered at a higher interest rate.
Whilst business loans in the UK are very common there are many types of loans available, and so it’s always important to understand what finance will best suit your needs. If your business is investing in assets with a considerable upfront cost a longer term business loan may be more suitable and your broker will be able to review options with you.
Asset financing
Asset financing is used for short term working capital and can be based on monies due to the business or assets – this is sometimes known as ‘warehouse financing’.
A business credit card
A business credit card plays a pivotal role in managing a company’s finances, and is specifically for corporate use. They are available to businesses of varying sizes, and can be used to effectively differentiate personal expenditures from business-related costs.
Although business credit cards operate similarly to regular credit cards, there are some notable differences. The most notable difference is that the borrowing limit on a business credit card is generally higher than a standard credit card, as it is based on personal income combined with the business’s revenue.
One further benefit of using a business credit card is that if repayments are made on time this can have a positive impact on the business’s credit rating.
Business overdraft
A business overdraft is short-term cash injection to a business bank account. If approved by your lender, the required overdraft limit can be increased or decreased to suit your business needs. Business overdrafts differ from a loan in that interest is only charged on the amount by which the business is overdrawn. The overdraft can be repaid as your income allows, but it is worth remembering that your bank may demand repayment at any time. The lender may also charge a fee for the overdraft.
How can I find the best loans to finance my company payroll?
Payroll loans are rarely provided by mainstream lenders and so finding a lender that deals with payroll finance and comparing deals can be time consuming and complex.
Using an expert broker, such as ABC Finance, means you will have access to a panel of lenders that specialise in payroll finance and will understand your business.
Our aim is to save you money by finding you the best deal using our knowledge of the markets and to take the stress out of finance so you can concentrate on your business.
We offer competitive interest rates, flexible terms, and a team of dedicated professionals who understand the unique challenges and opportunities of machinery financing. Furthermore, we’ve helped over 30,000 businesses find a loan – our Trustpilot scores and reviews demonstrate how happy our customers are with our service.
What are the pros and cons of a payroll business loan?
Pros
Improved Cash Flow
A payroll loan can address short term cash flow issues and, most importantly, ensure that employees get paid on time.
Positive Credit History
When used in the short term and paid back according to the agreement, a payroll loan can help build a positive credit history with lenders and show responsible borrowing.
Flexible
Payroll loans can be very flexible and combine a number of methods to assure the loan. For example, by using personal guarantees or invoices to secure the funding.
Cons
Interest Payments
Interest rates on payroll loans can be higher than other business loans, especially for unsecured large amounts over a short term.
Repayments
If a loan is not paid back on time, this can damage the company’s credit rating; however, this applies to all loans and is not exclusive to payroll loans.
Revenue
Regular payments can strain finances if there is not enough revenue to pay back the loan.
Will my company qualify?
Yes, however, businesses must be UK based and have been trading for at least six months to be eligible for a loan.
A range of documents will also be required, and although this varies from lender to lender it is likely to include:
- Proof of company incorporation.
- Bank statements.
- VAT returns.
- Inventories.
A business plan is also helpful so that lenders can understand business objectives and how monies will be paid back through revenue creation.
In most cases ABC Finance can match our customers with an appropriate lender using our panel of experts that understand the unique challenges that face businesses and their cash flow fluctuations.
Frequently Asked Questions
The amount your business can borrow will depend on a number of factors, including credit history, the term of the loan and whether it will be secured or unsecured.
Typically, a payroll loan can range from £5,000 to £750,00 with a term of 3 to 72 months.
Potentially, yes. ABC Finance works with a wide range of specialist lenders and will advise what the most suitable options are for your business.
Contact our team for a callback and discussion about your needs. We are regulated by the Financial Conduct Authority, and with twenty years of experience we use our experience and market knowledge to secure you the very best deal.
Not necessarily, this will depend very much on your circumstances and whether the lender feels there is an elevated level of risk.
If the loan is unsecured and your business has a poor credit history then a personal guarantee may be required. The need for a personal guarantee is also more likely if the loan is for a large amount and the business has other liabilities. If there are ways to secure the loan, such as against assets, stock or unpaid invoices then the requirement for a personal guarantee is less likely.