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Small Business Payroll Loans Defined & Explained

Small Business Payroll Loans Defined & Explained
Susan Guillory

Susan Guillory

Updated November 10, 2021
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
It happens. Business is chugging right along — until it isn’t. You might have a slow month or two when you find it difficult to cover business expenses, including payroll. What then? How can you ensure your staff gets paid and business gets back to normal?There are, fortunately, different business loans you can use to cover such expenses at times like these. In fact, there are even specific payroll loans to help.Let’s take a closer look at small business loans meant to cover payroll so you understand your options.

What Are Payroll Loans?

Payroll loans is an umbrella term for any type of business financing that can be used to cover expenses that include payroll and payroll-related expenses, like health insurance for your staff. There are many different loan types under this umbrella. For instance, you may already know what working capital loans are, but did you know that most of them can be used to cover payroll expenses?These loans may be offered by banks, credit unions, or online lenders, and they may have different requirements to qualify, as well as differing rates.

What Can Payroll Loans Be Used For?

Before applying for any kind of business loan, research what you can use that business loan for to make sure you stay within those parameters. Payroll loans can typically be used to cover payroll, payroll taxes, and employee benefits.Depending on the type of loan you choose, you may also be able to cover other business expenses like inventory, office supplies, etc.

Pros and Cons of Payroll Loans

Are small business payroll loans right for you? Let’s weigh the pros and cons.


Some payroll loans require minimal paperwork as compared to others like bank loans or SBA loans. That means you may be able to apply and get approved within minutes. Many lenders will deposit funds in your bank account the next business day, so you can get the cash when you need it.Many payroll loans are easier to qualify for than other types of loans, since there are no credit check business loans and other options that look at qualifications other than your credit scores.And finally, if your struggle to pay staff puts you at risk of losing them, having the funds to keep payroll smooth and steady can help you keep those great hires you’ve invested time and money in.


Depending on the type of loan you get, you may need to repay it within a year or two, which can cut into your profit margins. Have a plan for how you’ll pay your loan back as part of your monthly budget.Likewise, some loans come with higher interest rates, particularly short term business loans. If you can’t qualify for a bank or SBA loan, interest rates can rise into the double digits.And finally, while a payroll loan can solve short-term cash crunches, it won’t be able to help if you have bigger financial issues. Consider it a band-aid, not a long-term solution.

Applying for Business Payroll Loans

Once you’ve explored your options for payroll loans, it’s time to choose the one that’s the best fit for you. The better your credit, the better the terms you may qualify for. If you have a high credit score, consider a long-term loan from a bank or the Small Business Administration.If your credit’s less than stellar, there are options, though they may cost more. Look to merchant cash advances, short-term loans, and lines of credit.Once you’ve landed on the best fit, review the requirements to make sure you meet them. You may need to have been in business a certain amount of time or have a certain level of revenues, in addition to credit score requirements.Next, gather any documents and information you’ll need, which may include:
  • Tax returns for yourself and your business
  • Articles of incorporation (if your business is incorporated) or articles of organization (if it’s an LLC)
  • Government-issued photo ID
  • Employer identification number
You may be asked for details about your business, such as your annual revenues and any existing debt. As a business owner, you'll need to provide details about yourself, like your address, Social Security number, and income.Some loan applications may take a few days or even weeks to process (this may be the case with banks and SBA loans). But others, like through online lenders, may give you an instant answer. Funds may be deposited as soon as the next business day.

What Are Other Small Business Loan Options?

It’s smart to be aware of all your financing options, whether you need to cover payroll or another business expense.

Inventory Financing

If you buy and sell products, you likely spend a large portion of your money on inventory. Did you realize that you can use the inventory you’re buying as collateral for a loan to purchase the inventory? Lenders will give you a percentage of the value of your inventory as a loan. Be aware that, should you not be able to pay it back, the lender can take the inventory to cover your debt.

Merchant Cash Advances

A merchant cash advance isn’t a loan but an advance on future sales. Payments will automatically be deducted from your daily or weekly sales transactions, plus a fee for the merchant cash advance company.

Short-Term Loans

If you need cash fast and don’t necessarily qualify for other options, a short-term loan can help. These typically need to be paid back within a few months and may have high interest, so weigh these cons against how much you need the money.

Equipment Loans

Just as inventory financing uses inventory as the collateral, equipment loans use the equipment you’re buying as the collateral for the loan. This often means you can get a low interest rate. Equipment loans can be used to buy computers, heavy machinery, or company vehicles.

Lines of Credit

Another option to look at is a business line of credit. Rather than getting all your money at once, you can borrow against a line of credit whenever you need cash. You can borrow a little, pay it back, and then borrow again.

Looking for a Small Business Loan?

Business payroll loans are just a drop in the bucket when it comes to your financing options. Don’t wait until you’re strapped for cash to explore getting a small business loan. With Lantern by SoFi, you can see offers from multiple lenders with one click of your mouse!
Photo credit: iStock/Cameron Prins
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC1021197

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the President of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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