Payroll financing refers to short term loans that small businesses can use to meet the immediate payroll needs of their business in as fast as 1 business day. In this article we cover the three main types of payroll loans, and provide our recommended lender for each option. We also give you the information you need to determine which payroll financing option is right for you.
Payroll Loan Options
There are three main payroll financing options:
Each option allows you to potentially qualify in minutes, and you can get funded as quickly as one business day. Here is a summary table of the terms and requirements of each option:
Payroll Loan Options at a Glance
| Short Term Financing | Medium Term Financing | Invoice Factoring | |
|---|---|---|---|
| Recommended Lender |  OnDeck |  StreetShares |  BlueVine |
| Time to Receive Funds | 1 - 3 Business Days | 1 Week | 1 - 3 Business Days |
| Time to Approval | Hours | 1-3 Business Day | 1-2 Business Day |
| Credit Score (check your score for free here) | 500+ | 600+ | N/A |
| Business Revenue | $50,000 - $100,000 | $25,000+ | Invoices |
| Time in Business | 1 Year | 1 Year | 1 - 6 Months |
| Origination Fees | 3% - 4% | 2.5% - 5% | N/A |
| APR | 30% - 50% | 10% - 40% | 17% - 60% |
| Loan Amounts | $2,000 - $500,000 | $5,000 - $500,000 | $1k - $10,000,000 |
| Payback Time Period | 1 Month - 3 Years | 1 - 5 Years | Invoice Due Date |
| OnDeck.com | StreetShares.com | BlueVine.com |
How Do You Choose Which Payroll Loan Option is Best For You?
Each loan option has specific benefits and minimum qualifications, so the right choice will depend on your needs and situation. Here’s a brief overview of the different options which we’ll expand on further in the article.
Short Term Loans for Payroll Financing
A short term loan is generally a good fit for businesses that need money immediately and are prepared to pay the loan back within 12 months. This also might be your only option if you don’t have good personal credit (under 600).
Medium Term Loans for Payroll Financing
A medium term loan is typically a good fit for businesses that can wait about a week to get funded and would prefer to have smaller monthly payment than you’d have with a short term loan. Credit score, revenue, and time in business requirements will be higher.
Invoice Factoring for Payroll Financing
If your business invoices B2B or B2G clients, invoice factoring is generally the best payroll financing option. It can be the cheapest option, doesn’t rely on your personal credit score, and can have you funded in as little as one business day.
Total Cost of Capital vs. APR Consideration
Short term loans have the highest APR, however if you’re going to pay the loan back in less than 12 months, you generally want to focus on the total cost of capital instead of APR.
For example, if you paid a $10,000 loan back in 1 month with a 40% APR, you would pay back a total of $10,333.33. If you paid that same loan back in 5 years with a 6% APR, you would pay back $11,599.68. As you can see, the total cost of capital for the 5 year loan is much higher, even though your APR is considerably lower.
Payroll Loans in Detail
Short Term Business Loans for Payroll Financing
Short term business loans can provide payroll financing in as little as 1 business day. The length of a short term loan is between 1 and 36 months. You can get funded up to $500,000, and you do not need a great personal credit score. The application and approval processes can be completed in a matter of minutes.
Who a Short Term Loan is Right For
If you need to get a loan tomorrow to make payroll, then this is most likely the option for you. This can be a good choice for almost any type of business, but you must be prepared to pay the loan back within 12 months. These loans can even work for business owners who have a credit score that is less than 600.
Time to Funding
A short term loan can fund as quick as 1 business day.
Qualifications
You must be in business for a minimum of 9 months, with at least $50,000 in annual revenues, and your personal credit score must also be above 500.
Application Process
The process is very quick for this loan type, and can be done with most lenders either online or via the phone. You can be notified of your approval within minutes. Many lenders will connect with your business bank account, or accounting software, to speed up the approval process. You can receive approval in a matter of minutes.
Recommended Lender for Short Term Loans
Our recommended lender for a short term loan to fill your payroll needs is OnDeck. With a OnDeck loan, you can borrow between $5,000 and $500,000 for terms of 3 to 36 months. You need to have at least $100,000 in yearly business revenues, and you need to be in business for a minimum of 12 months.
OnDeck Payroll Loans at a Glance
| Maximum Loan Amount | $5,000 - $500,000 |
| Time to Receive Funds | As quick as same day |
| Time in Business | 9 Months |
| Business Revenue | $75,000+ |
| Credit Score | 500+ |
| Origination Fees | None |
| APR | 30% - 50% |
| Payback Time Period | 3 - 36 Months |
Medium Term Business Loans for Payroll Financing
While a medium term loan typically requires stronger revenues and a better credit score than short term loans, it can also provide a better APR and longer repayment terms. These loans take about 1 week to get funded, which makes them a great choice if you’ve got the time. Some loans in this category do carry prepayment penalties, which can make them more expensive than short term loans if you plan on paying off the loan within the first 12 months.
Who a Medium Term Loan is Right For
If you have a good credit score and strong revenues but are looking for a loan with a lower monthly payments than a short term loan, a medium term loan could be a good fit. These loans are open to almost any type of business as long as you can wait about a week to get funded.
Time to Funding
A medium term loan can typically take about 1 week to fund.
Qualifications
You must be in business for a minimum of 1 year, have annual revenues of $25,000 or more, and have a personal credit score of at least 600.
Application Process
You can start the loan application process online, and it can be completed in a matter of minutes if you have the necessary documentation prepared in advance. Medium term business loans require more documentation to complete underwriting than short term loans. They often look at recent tax returns, P&L and balance sheets to make their loan determinations. These document can be uploaded online and the approval process can take just 1 – 2 business days, getting you funded in a week.
Recommended Lender
Our recommended lender for medium term loans is StreetShares. With StreetShares, you can fund in as little as 2-3 business days, and they only require business revenues of $25,000 or more. StreetShares can be an even better solution for you than a short term loan as long as you can wait a week for the funds. Because StreetShares doesn’t have a prepayment penalty, if you decided to payback their loan in the same timeframe as a short term loan, StreetShares can often be the cheaper option.
StreetShares Payroll Financing at a Glance
| Maximum Loan Amount | $5,000 - $100,000 |
| Time to Receive Funds | 2 - 3 Business Days |
| Time in Business | 1 Year |
| Business Revenue | $25,000+ |
| Credit Score | 600+ |
| Origination Fees | 2.95% - 4.95% |
| APR | 10% - 40% |
| Payback Time Period | 3 - 36 Months |
Invoice Factoring for Payroll Financing
Invoice factoring can be the cheapest option of the three, and can be a great choice to fund your payroll needs, if you qualify. Invoice factoring differs from the the other two options in that it requires your business to have outstanding invoices with B2B or B2G clients to qualify. This option is more flexible than traditional lending options, and can provide quick capital when you need it.
Who Invoice Factoring is Right For
Invoice factoring is an option available to those small businesses who invoice B2B or B2G clients. If you have outstanding invoices that won’t be paid for 30-90 days, invoice factoring can turn those invoices into cash right away and be a great payroll loan option.
Time to Funding
An invoice factoring company can get you the funds in 1 to 3 business days.
Qualifications
You must have outstanding invoices owed by B2B and B2G clients, have been in business for a minimum of 1 month, and have a minimum personal credit score of 530.
Application Process
You can qualify for invoice factoring if you have credit-worthy clients with outstanding invoices that are due in less than 90 days. Many invoice factoring companies will connect directly to your accounting system to quickly analyze your outstanding invoices and determine which will qualify for factoring. You then pick which invoices you’d like to factor. With invoice factoring, you can get funded in as little as 1 business day.
Recommended Lender
Our recommended lender for invoice factoring is BlueVine. With BlueVine you can borrow between $5,000 and $500,000. You can also expect an advance rate of 85% – 90% of your total outstanding invoices. Your payables must be due in the next 90 business days to qualify, and you must have at least a 530 credit score.
BlueVine Invoice Factoring at a Glance
| Maximum Loan Amount | $5,000 - $500,000 |
| Time to Receive Funds | 1 - 3 Business Days |
| Time in Business | No length requirement |
| Business Revenue | Need Outstanding Invoices |
| Credit Score | 530+ |
| Origination Fees | Use Discounts |
| APR | Average of 40% |
| Payback Time Period | When invoice is due. |
When You Should Consider Long Term Options for Payroll Financing
Short term loans are a great option for those businesses that are facing one-time, short term payroll financing issues. If your business is facing ongoing payroll concerns, then short term loans may not be a good option. In fact, they might compound the problem.
If you’re struggling to make payroll on a consistent basis then you should consider obtaining either an SBA loan (funded in 1 month, with APRs around 6.25%, with a term of 7 – 10 years) or a low rate business line of credit (LOC) to draw against when you need it. Both an SBA loan or a low rate LOC are better long term payroll financing solutions because they will offer lower monthly payments.
Keep in mind, if you’re borrowing for the long term, APR becomes more important than total cost of capital. Taking out consecutive short term loans to cover payroll expenses over a long period of time is as expensive as taking out a long term loan with a very high APR,
Bottom Line
If you want more info on creative payroll solutions, read our article on more options for payroll funding and other solutions to payroll problems. If you currently have outstanding invoice from B2B or B2G clients, your cheapest total cost of capital option can be invoice factoring. BlueVine makes invoice factoring quick and easy, getting you funded in about a day.
If you do not qualify for invoice factoring, choosing between a short term loan or a medium term loan for your payroll loan needs should be decided based on your credit score, how quickly you need the funds, and how quickly you are prepared to repay the loan. If you need same-day funding to cover immediate payroll needs, we recommend applying for a payroll loan with OnDeck.
Tax King Inc
Base on my observation, Short term business loans are more helping then take long terms or invoice factoring loan. To cover Payroll, can use short term loans. Because these are expenses we must have to pay our employees monthly basis.
We can’t run the business just on loan. So we must need focus on business income to cover payroll
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Hi there,
Thanks for weighing in on our payroll loans article!
Best,
Ian
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