Payroll loans are short-term loans that small businesses can use to cover employee wages. Lines of credit are the most common solution; however, business owners can also use invoice financing, short-term loans, and merchant cash advances as a last resort. Each option has trade-offs, and the best one is accessible and affordable to the business.
Top 6 Payroll Loans 2020
(Best overall) Same day payroll funding
Easy-to-meet qualifications on a line of credit
Monthly payment option on a line of credit
Flexible repayment terms on a short-term business loan
Long repayment terms on unsecured payroll funding
Poor credit payroll funding through a merchant cash advance
Payroll loans are critical for businesses needing to smooth out their cash flows to meet payroll obligations. Payroll loans for small businesses include any financing used to cover employee wages by a business. Business owners sometimes confuse them with payday loans, which lenders make to individuals as an advance on their salary.
How Payroll Loans Work
Business owners rely on payroll funding to cover unexpected gaps in payables to employees. Business owners prefer a short-term advance that allows them to cover expenses and repay it quickly. Payroll loans work for unexpected shortages, but they should not be a long-term solution.
Payroll funding options include:
- Lines of credit: Preferred method of financing due to the revolving credit and flexibility.
- Short-term business loans: Lump-sum financing with a repayment term, preferred for larger funding amounts.
- Invoice financing: Line of credit based on invoice value, preferred by business owners who invoice customers.
- Invoice factoring: Advance based on invoice value, preferred for large funding amounts by businesses with substantial outstanding invoices.
- Merchant cash advances: Last-resort advance based on credit card receivables, used by business owners with poor personal credit.
Payroll loans work differently depending on the financing a small business elects to get. There are several options to choose from, with revolving lines of credit being the most common solution for payroll. In researching this article, we found that small business owners who get a line of credit use it for payroll 50% of the time.
How We Evaluated the Best Payroll Loans
We selected a variety of funding options to fit the needs of small business owners. We compared over 100 loan products on criteria such as costs, repayment terms, funding speeds, and minimum qualifications. We also selected the products that small business owners reported using most frequently for payroll.
BlueVine: Best Overall Payroll Funding Solution
BlueVine offers small business owners a business line of credit that is great for addressing payroll gaps. Small business owners can qualify to borrow up to $250,000 with repayment terms up to one year the same day they apply. The line of credit is revolving, so small business owners can repay the advance and use the credit line for other expenses.
BlueVine Line of Credit Costs
Small business owners pay a predetermined interest rate on each draw from a small business line of credit from BlueVine. The overall cost of funding is manageable and business owners need not worry about additional or unexpected fees. The only exception to this is a wire transfer, which is a cost the BlueVine passes on to borrowers.
Small business owners can qualify to access a substantial amount of funding with BlueVine. With high payroll expenses, the option of making weekly or monthly payments over the course of a year makes payments easier to plan and manage. Business owners who have a sudden payroll gap can receive funding the same day from BlueVine to cover any expenses.
BlueVine lines of credit are accessible to newer businesses, but they have a minimum credit score and annual revenue requirement that not all companies can meet. Well-qualified small business owners can receive the best rates and terms, but applicants with less than perfect credit can also receive funding.
What BlueVine Is Missing
While BlueVine offers a great payroll funding solution for small business owners, it has high minimum requirements. Business owners with a personal credit score below 600 or less than $100,000 in annual revenue cannot qualify for this option. It also doesn’t offer an interest discount for early repayment, which is a feature that some other lenders offer.
We considered BlueVine reviews by users from around the web and determined it has positive ratings. Positive BlueVine reviews came from customers who noted its helpful customer support team. Critical BlueVine reviews came from business owners who did not receive approval for funding from BlueVine.
How to Apply With BlueVine
Business owners who apply with BlueVine can complete the application online. They must submit basic personal and business information and connect BlueVine to a business bank account. BlueVine also offers business owners an option to upload bank statements, and provides an approval decision with an hour in most cases.
To BlueVine’s Secure Site
Fundbox: Payroll Funding With Simple Qualifications
Fundbox offers a line of credit with low minimum requirements and is a great payroll funding option for small businesses. With funding available in 24 hours, fees starting at 4.66%, and loan values of up to $100,000 it is great for business owners needing a small payroll loan that they can use immediately.
Fundbox charges a weekly fee known as the discount rate. With Fundbox, businesses can decrease the overall cost of their loan by paying it early, unlike many other payroll lenders on this list. Every day that a $10,000 loan is outstanding with Fundbox, it will charge daily interest between $2.70 and $21.65 until the business repays the loan.
Businesses can use Fundbox’s line of credit as a short-term payroll loan with maximum terms of 24 weeks. This is a shorter term than other providers, covering three to six months. Business owners needing a monthly payment option because of inconsistent cash flow should consider a different line of credit provider.
The low minimum qualifications that Fundbox sets are accessible to small business owners with poor credit, low revenue, and new businesses. This level of accessibility is necessary for business owners needing to cover payroll shortages quickly and without worrying about qualifying.
What Fundbox Is Missing
Fundbox offers fast funding with flexible draws and low minimum qualifications. However, business owners can only get up to $100,000 with terms of 24 weeks. While most payroll funding needs are short term, business owners should consider their cash flow position and the predictability of their revenues before committing to short repayment terms.
Fundbox reviews are positive overall and came from users who said the company’s helpful customer service team made the process easy. Critical Fundbox reviews are from users who wished they could change the repayment terms to longer periods after starting the loan.
How to Apply With Fundbox
Business owners can apply with Fundbox by submitting some personal and business information and connecting the lender to their accounting or invoicing software. Fundbox then provides applicants an approval decision in as quickly as three minutes.
To Fundbox’s Secure Site
Kabbage: Best Payroll Loan With Monthly Payments
Kabbage is best for businesses needing monthly payments on a payroll loan up to $250,000. It is the only provider we evaluated that offers monthly payments and repayment terms up to 18 months. Business owners should know they can reduce their interest costs by repaying a draw early with Kabbage, but that its starting rates are higher than other lines of credit.
With each draw considered an independent loan, Kabbage offers borrowers a great deal of flexibility in how much and when they borrow funds. Similar to Fundbox, it also allows businesses to repay the loan early and save money on the remaining monthly fees. For every $10,000 a business draws, Kabbage charges a daily interest payment between $6.55 and $27.10 while the loan is outstanding.
While Kabbage offers repayment terms up to 18 months, only well-qualified business owners receive the option. The most common repayment term with Kabbage is six months, which is a substantial amount of time for most business owners to make payments. The Kabbage Card is a large added convenience allowing small business owners to pay with the line of credit anywhere Visa is accepted, but it has little impact on payroll payments.
Although qualifying for a Kabbage line of credit can be more difficult than Fundbox, the flexible loan amounts and high maximum makes it a strong payroll financing option. The minimum credit score requirement may be a hurdle for some businesses that may need a business loan with bad credit.
What Kabbage Is Missing
Kabbage is the only option on our list that offers monthly payments and 18-month repayment terms on payroll funding. However, it has higher minimum requirements than Fundbox and offers half as much funding as OnDeck does. It also charges a high starting APR, making it less affordable than other options for prime borrowers.
Kabbage reviews are positive overall and provided by business owners who appreciated help from its customer service team and the tools it provides to understand costs. Although some Kabbage reviews complained about high interest rates and short repayment terms, it discloses its rates and terms upfront.
How to Apply With Kabbage
Small business owners can connect their business bank account or accounting software to apply with Kabbage. While Kabbage still needs personal and business information for the application process, the added convenience of connecting the account speeds up the funding process. Applicants can receive an approval decision the same day they apply.
To Kabbage’s Secure Site
LoanBuilder: Best Customizable Payroll Loan Option
LoanBuilder offers unsecured short-term business loans with terms that borrowers can customize to fit their payroll needs. It issues loans up to $500,000 with a starting rate of 2.9% and weekly payments to small businesses. Its rates are disclosed as a flat fee, allowing small business owners to calculate the cost of funding.
LoanBuilder offers business owners who repay the loan early a full discount on the remaining interest. Based on available information, we estimated its APR ranges from 12% to 136%. This means that a business will pay daily interest between $3.30 and $37.30 for every $10,000 it borrows.
LoanBuilder’s greatest advantage over other payroll loans we evaluated is the flexibility it offers in terms and loan amounts to its borrowers. By selecting the repayment term, the borrower can control costs and borrow for a set time that is sustainable for the business. This gives borrowers greater flexibility to match repayment terms to earnings.
With a nine-month active time in business and a credit score of 550 or higher, qualifying for LoanBuilder is comparable to the other payroll loan options we discussed so far. The additional requirement for annual gross business revenue is lower than other payroll loans, but expect these requirements to increase for longer terms and larger loan amounts.
What LoanBuilder Is Missing
With LoanBuilder, borrowers can qualify to borrow up to $500,000 and select their own repayment terms. However, the maximum term of the payroll funding is 52 weeks and business owners only have the option of weekly payments, which are both major drawbacks of a short-term loan from LoanBuilder.
We compiled LoanBuilder user reviews from around the web and determined LoanBuilder has positive ratings. Customers who provided positive LoanBuilder reviews said its process was quick and efficient. Customers who provided negative LoanBuilder reviews said the cost of the loan was too high.
How to Apply With LoanBuilder
LoanBuilder’s online application is simple and requires some basic personal and business information. Business owners can then upload recent bank statements or connect to a participating business checking account. LoanBuilder provides an approval decision within an hour and business owners can then select the repayment term and view the corresponding rates and payments for the loan.
To LoanBuilder’s Secure Site
OnDeck: Best Payroll Loan for Long Repayment Terms
OnDeck offers short-term loans up to $500,000 with a repayment term up to 36 months. While this isn’t an option that most business owners need, the long repayment terms can be useful if payroll is one many expenses or opportunities a business needs to finance. While OnDeck has low starting rates, it charges an origination fee and has a wide APR range, so business owners should evaluate the affordability of any offer.
The OnDeck term loan has a rate as low as 9%, which makes it a low-cost loan for well-qualified borrowers. To better understand what the APR means for a business, consider that for every $10,000 borrowed, OnDeck charges between $2.70 and $27.40 in interest per day while the loan is outstanding.
OnDeck offers payroll loans that range from three to 36 months. This high range of flexibility compares well to other options, especially if a business’ payroll financing needs are unpredictable. However, when comparing OnDeck to Kabbage, another payroll lender, borrowers will notice that OnDeck lacks a monthly payment option.
OnDeck has the toughest qualifications to meet because it requires a high credit score, revenue, and substantial operating history. While these are minimums, the average approved OnDeck borrower exceeds these minimums, and business owners should know that meeting these qualifications does not ensure approval.
What OnDeck Is Missing
Borrowers needing a term loan with long repayment terms and the lowest rates for prime borrowers will be happy with OnDeck. However, there is no benefit to paying off the loan early for business owners and the minimum qualifications can be difficult to meet, especially when considering the average borrower that OnDeck approves.
Users leave positive reviews of OnDeck on our site and around the web, noting its professional and friendly customer service made the loan process quick and easy. Users who gave critical OnDeck reviews said its fees were costly compared to other alternative lenders.
How to Apply With OnDeck
Applicants can complete an OnDeck application online and receive an approval decision in minutes. OnDeck requires some basic personal and business information and a connection to a business’ checking account. Borrowers also have the option of uploading bank statements and with either method, OnDeck can provide funding the next business day.
National Funding offers its merchant cash advance to high-risk borrowers unable to get access to payroll loans anywhere else. National Funding offsets this risk with a high factor rate. Based on the estimated APR, businesses can expect a $10,000 MCA to cost between $8.20 and $41.10 in interest per day.
National Funding Terms
National Funding payroll loans have high variability in the specific terms received by businesses. However, part of what National Funding offers is the relationship and future access to better-priced loan products as a business owner’s credit score improves. Business owners who get a merchant cash advance can refinance it with a small business loan through National Funding.
National Funding Qualifications
National Funding requires no minimum credit score and one year of ongoing operations. In addition, applicants will have to provide a history of credit card processing to establish their ability to repay the loan. These terms are easier to meet than other lenders we evaluated and are comparable to other MCA providers.
What National Funding Is Missing
Business owners who exhaust all other options can consider Nation Funding for a merchant cash advance. However, an MCA is an expensive payroll funding option, and so the rates National Funding charges are a drawback. To transition to a more affordable loan from National Funding, business owners will need to improve their personal credit score.
National Funding Reviews
We determined that National Funding reviews are a mix of positive and negative feedback from users. Customers who gave positive reviews said the application process was quick and easy. Customers who gave negative National Funding reviews complained about high interest rates and additional charges.
How to Apply With National Funding
Since merchant cash advances come at a high cost and can create a potential cash flow strain, we only recommend it for businesses that cannot qualify for a different option. Applicants that exhaust other options can submit some basic information and proof of daily credit card receivables to get a merchant cash advance. National Funding may contact the business for additional information or to offer a more affordable funding alternative.
Visit National Funding
To National Funding’s Secure Site
Pros & Cons of Payroll Funding
Payroll funding offers small business owners an option to cover payroll expenses and avoid missing payments to employees. This can improve employee retention with short-term funding that is available quickly. However, business owners should make it a priority to address underlying issues and ensure that there is a sustainable plan in place for repayment.
Pros of Payroll Funding
- Increasing employee retention: Failing to pay employees causes employee turnover, which results in increased costs for hiring, onboarding, and training replacements. Accessing payroll funding to cover a temporary shortfall can prove cost-effective after considering other expenses.
- Matching a short-term need with a short-term solution: Most payroll funding gaps are short term in nature and result from a slow month or busy season. Getting a short-term financing solution can reduce the overall cost of financing for a business.
- Accessing funding on short notice: Although many businesses engage in planning and budgeting, unexpected expenses can cause a payroll funding gap. Waiting weeks for funding in such an event isn’t an option. In these cases, getting a payroll loan with next day funding is the best solution.
Cons of Payroll Funding
- Failing to solve a long-term issue: Larger underlying issues like poor cash flow or personnel management can cause payroll issues. Getting payroll funding only applies a patch to the problem, and it’s important for business owners to address underlying issues.
- Compounding existing working capital shortages: When a business faces short-term funding issues, payroll is one of the highest priorities. However, loan payments can strain cash flow and make it difficult to manage payments. Business owners should ensure that they have a plan for how to repay the payroll loan.
In this guide, we covered the best online lenders for payroll loans available to small businesses needing payroll funding. When selecting a payroll loan provider, businesses should look for terms that match their needs at the lowest cost. Besides the options we covered, there are other creative payroll solutions available.