Top 5 Situations When a Payroll Loan Can Help Your Business Stay Afloat

As you grow your small business, one of the most important costs you’ll have is payroll. Building your team and hiring employees can be a necessary part of scaling up and managing everyday operations. Having people on staff though means that you’re responsible for payroll expenses. If you’re facing a cash crunch, you might realize something that can be incredibly stressful: you don’t have enough cash on hand to meet your payroll needs.

The good news is that there are payroll business loans available to ensure you can keep things running smoothly. The last thing you want to do is disrupt the payroll process, which could have sweeping implications for you, your business, and employees. Various situations can occur that cause cash flow issues and the need to turn to business financing. Here we cover the top five situations when a payroll loan can help your business stay afloat and options to look into.

1. Delayed Payments

When your clients or customers have delayed payments, it can have a domino effect on your business. You may still need to pay your staff or contractors while you’re waiting for accounts receivable to come in.

For example, if you run a marketing agency, you may have an outstanding invoice with a corporate client with net 45 or net 60 terms. In the meantime, you’ll still need to pay your employees and freelancers who contributed to the project, regardless of when your client pays you.

Having delayed or late payments can hurt the foundation of your business and lead to serious cash flow issues. If not remedied quickly, it could affect your ability to meet payroll. This is one of the top situations where a payroll business loan can help you ride out the volatility and keep things going.

2. Seasonal Slowdowns

Managing cash flow is a major part of running a business. If you have a seasonal business, you might face more drastic spikes and drops in revenue. In turn, that may affect your ability to make payroll.

For example, if you own a retail store, you might see a good chunk of your revenue come in during the holiday months. January to March may be a dead zone, but you’re still responsible for paying your employees’ wages. Similar issues can arise in hospitality, tourism, events, landscaping, and more.

Even if you don’t have a traditional seasonal business, you could face an unexpected drop in revenue. During these uncertain times, many people have less discretionary income because of inflation. Additionally, an increase in layoffs and recession fears can impact your customers and their spending, which can also affect your bottom line.

3. Emergencies

Running a business is hard enough as-is. But having an emergency on your hands can majorly impact your business operations. And by the very nature of emergencies, you can’t necessarily foresee when it will happen or how it will impact your business. Of course, having cash reserves that can act like a business emergency fund is crucial to have. But even the best planners can’t anticipate what could happen (despite the desire for control).

One recent example is the COVID-19 pandemic, which turned into a global crisis, forcing businesses to pivot quickly. Some other examples include:

• Property damage: If you have a brick-and-mortar business, you’re at risk for property damage that could impact your operations. If you’re the victim of a robbery and there’s shattered glass everywhere, you might have to close it temporarily to fix the issue. The same thing if your store is vandalized. Additionally, protests, pests, and drunk drivers can also lead to property damage and be a major emergency. Depending on the nature of the damage and how long it’ll take to fix, it can affect your operations and ability to earn revenue. Because of that, you might be cash-strapped when it’s time to make payroll.
• Utility outages: There are many external things that typically work in harmony to help you run your business. When everything is working well, you probably don’t even think about it. For example, utilities like electricity, gas, and water. Unfortunately, sometimes there are utility outages that are out of your control. Most businesses rely on one or all three of these utilities. When things are down, you might not be able to operate, which could lead to a loss of revenue.
• Supply chain disruptions: You might work with various vendors and if there are supply chain disruptions, it can seriously impact your business. This can lead to a shortage of inventory or the supplies you need for your business.

All of these emergencies can have a substantial impact on your business and hurt your revenue. Not only that, but you might also have lots of unexpected expenses to deal with as well. In these cases, a payroll business loan can provide a solution while you’re trying to focus on the emergency situation in front of you.

4. Staffing Surge

A payroll business loan isn’t only for the down times in your business. In fact, you might need a payroll loan if you have a staffing surge. For example, you might be growing quickly and need to hire additional employees to scale up. If you have a seasonal business, you might need extra staff on hand to deal with the increase in demand.

While this may lead to additional revenue down the line, in the short term, you may have delays in accounts receivable. But you’re still on the hook to pay your employees' wages and payroll taxes. A payroll business loan can help manage the gap if you’ve hired additional staff and are waiting for the revenue to hit your account.

5. Natural Disasters

In the past year, we’ve seen a range of natural disasters across the United States. We’ve had wildfires in Los Angeles, a hurricane in North Carolina, a tornado in St. Louis, and flooding in various regions.

The economic impact is staggering. According to the NOAA’s National Centers for Environmental Information (NCEI), there were a total of 27 weather and climate disaster events in 2024 in the U.S., with losses exceeding $1 billion per event.

Natural disasters can put your business on hold for days, weeks, or months, depending on the nature of the event and recovery efforts. This could effectively cut off your source of revenue for an indefinite period. Along with the emotional toll, the financial toll can be severe, especially if you still need to pay your employees. Payroll business loans can be an quick solution while you’re picking up the pieces after a heartbreaking natural disaster.

Types of Payroll Business Loans and Financing

If you need a payroll business loan or financing, you have several types of financing to look into.

• Short-term business loans: If you need payroll funding assistance, you can look into short-term business loans. These types of loans can help if you have an immediate need and typically have shorter repayment terms. Additionally, they generally come with higher interest rates.
• Business line of credit: If you’re looking for something more flexible, a business line of credit is worth considering. It’s like a credit card, where you get an approved limit and can draw on funds. Once you repay the funds you use, your available credit refreshes and can be used again.
• Invoice factoring: For businesses that rely on invoices for their revenue, invoice factoring is an option. It’s not exactly a payroll business loan in the traditional sense, but it can provide funds. The way it works is that a factoring company will purchase your unpaid invoices. The company will give you a percentage of the money upfront and take out fees.
• Merchant cash advance: If your business is fueled by credit card and debit card transactions, a merchant cash advance or MCA could be another financing option. It’s not a traditional payroll business loan, but it can provide funding options, nonetheless. A merchant cash advance gets repaid through a percentage of your future sales. However, MCAs can be costly, so you may only want to go this route if you can’t qualify for other options and have strong financials.
• SBA loans: The Small Business Administration (SBA) has multiple loan options. When it comes to a payroll business loan, you can look into the 7(a) loan program which may help. While this can be an option to look into, it may not be the right fit if you’re in a time-sensitive situation because of the processing times.

When deciding on which payroll business loan or financing option is best for you, look at:

• Eligibility requirements
• Annual Percentage Rate (APR)
• Repayment terms
• Minimum credit score requirements
• Annual revenue requirements
• Funding speed
• Application process
• Flexibility
• Predictability

Reviewing your business needs alongside these factors can help you make an informed decision. That way, you can get a payroll business loan that works for your unique needs.

Final Thoughts

When you run a business, every day brings something different. That can be exciting and keep you in the game. But sometimes things happen that can put you in a tough spot. Whether it’s a cash shortfall, an emergency, or a natural disaster, there may come a time when you need to look into financing options. Through a payroll business loan, you may be able to secure the loan amount you need to cover everything and run things business as usual.

FAQs about Payroll Business Loans

If you have additional questions about getting a payroll business loan, here are some FAQs and answers for more information.

Can You Get a Business Line of Credit for Payroll?

It is possible to get a payroll line of credit to cover payroll costs. This type of payroll loan can provide flexibility as business lines of credit are revolving, so you can use funds, repay them, and access them again.

What Are Some Payroll Platforms for Small Business Owners?

Various payroll platforms are available for small business owners, including Paychex, Gusto, and ADP. You can research multiple options to find something that fits your payroll needs.

Are PPP Loans Still Available?

Paycheck Protection Program (PPP) loans are no longer available. The PPP program ended on May 31, 2021, according to the Small Business Administration (SBA).

Can Small Business Loans Cover Payroll?

Payroll business loans are available to small business owners who need short-term financing to meet payroll needs.

Where Can You Get a Payroll Business Loan?

If you need a payroll business loan, you can get them from a traditional bank you work with, credit unions you’re a member of, and even online lenders and alternative lenders that specialize in business financing. Employees may qualify for loans through payroll if the company offers this type of benefit.

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