Payroll Loans

Payroll Loans

Ensuring that your employees get paid is the number one priority for most businesses. However, the ups and downs of business cash flow can mean that some months you are caught a little short and making payroll is suddenly a worry.

Thankfully, there are a number of short-term business loan options available to businesses to fill that gap, making sure your staff salaries are paid and saving you from having to let down your loyal employees.

Payroll loans come in a range of shapes and sizes to suit your business type and we at Clifton Private Finance are here to help you understand your options. 

The Basics

Payroll loans are designed to help you with your payroll obligations when capital is low and cash flow is tight, this means they have a number of specific benefits that other business loan options don’t offer:

• Extremely fast application process with loans available within 48 or even 24 hours.
• Scalable to fit the demands of your staff level.
• Available as revolving lines of credit to cover multiple months of cash flow difficulties if needed.

However, payroll loans are not without their downsides.

8 Types of Payroll Loan Compared

Payroll loans are not a ‘one size fits all’ solution. The nature of different businesses means that a finance structure that is suitable for one company may not fit another; consequently, payroll loans is an umbrella term for several separate options.

1. Asset-Based Short-Term Business Loan

Asset-based loans are backed by the use of a business asset, such as a commercial vehicle or IT equipment, acting as collateral for the loan. This significantly lowers the risk for the lender and can result in lower interest rates and a greater chance of the loan application being successful.

However, asset finance can be a little longer to arrange as the lender will need to evaluate the asset and undertake due diligence.

PROS:

• Lower interest rates
• Achievable with poorer business credit rating
• Available sums ties to the asset value

CONS:

• Not as quick to apply as other options
• Risk of asset repossession
• Loan may come with arrangement fees

2. Unsecured Short-Term Business Loan

An unsecured business loan is one where the business credit history is assessed throughly for applicant viability. Thanks to modern credit reporting and the speed of assessment, unsecured short-term payroll loans can be put in place extremely quickly.

PROS:

• Fast application process
• Relatively little paperwork

CONS:

• Difficult to obtain on poor credit
• May require a director’s personal guarantee
• Difficult to raise larger sums
• Potentially high interest rates

3. Revolving Credit Facility

A specialised payroll revolving credit facility provides an ongoing line of credit that the business can ‘dip in’ and out of when needed. This provides an extra level of flexibility and if well managed, can keep the cost of interest down.

PROS:

• Provides security for the longer term
• Relatively quick to set up

CONS:

• Can spiral out of control with high interest rates
• May have additional fees

4. Invoice Factoring

Invoice factoring is a system that’s perfect for B2B companies waiting for invoices to be paid on long invoice terms.

It works by selling the debt to a factoring company who will pay you the majority of the invoice immediately and collect the sum on your behalf, paying the remaining amount upon completion. Invoice factoring can be set up as a longer-term line of credit or a single short-term loan.

PROS:

• Fees are often lower than equivalent loan interest rates
• Reduces paperwork and administration
• Quick to set up
• Flexible

CONS:

• Can damage supplier-customer relationships
• Only available for B2B businesses
• Customer credit rating may affect loan value

5. Invoice Discounting

Another form of short term invoice finance for B2B companies, invoice discounting is a loan offset by the business accounts receivable and is used to release funds tied up through long invoicing terms. Invoice discounting can offer lower interest rates and considerable flexibility, lifting the burden on cash flow and ensuring that you meet your salary payment obligations.

PROS:

• Flexible
• Competitive interest rates
• Rapid application
• Invisible to clients

CONS:

• Over-reliance on invoice discounting can be expensive
• Only for B2B busineses

6. Merchant Cash Advance

Merchant cash advance is an agreement made with your merchant services bank to be provided with a loan or line of credit in lieu of future credit and debit card transactions.

Businesses with considerable B2C card transactions can use forecast figures and prior financial statements to provide immediate funding that is repaid as a percentage of future takings.

PROS:

• Smooths cash flow for seasonal businesses
• Uses predicted sales growth to release cash early to pay salaries
• Quick application thanks to existing merchant services relationship

CONS:

• Over-reliance on merchant cash advance can spiral
• Will affect future cash flow, limiting other growth opportunities
• Only available for B2C businesses with substantial card transactions

7. Revenue Financing

Revenue financing is short-term payroll funding on a similar model to merchant cash advance. The payroll loan is obtained under an agreement to surrender a percentage of future sales as repayment. Revenue financing is excellent to cover short term salary payment difficulties for seasonal businesses with strong growth or future sales forecasts - it's often used in ecommerce financing, for example.

PROS:

• Percentage-based repayments limit stress on cash flow
• Risk assessment based on prior seasonal sales and strong forecasting lowers interest rates

CONS:

• Future difficulties can extend repayment periods, potentially simply shifting payroll difficulties to a later date
• Requires strong business planning and comprehensive accounting details
• Only suitable for businesses with stable and consistent sales forecasting

8. Overdrafts and Credit Cards

Available to all businesses, and often part of the existing company financial landscape, bank account overdrafts and company credit cards can provide the short-term financing that your business needs to see itself through a difficult period.

Both overdrafts and credit cards may have high interest rates, however, with the latter also often including additional fees for cash transfers. It is important to check your rates before leaning too heavily on overdrafts and credit cards to see you through a period of payroll complications.

PROS:

• Extremely easy to arrange and obtain
• Potentially already in place
• Some 0% short-term rate deals are available

CONS:

• Rates are rarely competitive
• Mismanagement can lead to significant problems later on
• May already be stretched 

Case Studies

Managing Payroll Loans

At Clifton Private Finance, we are here to help our customers through any period of financial difficulty, and that doesn’t mean just finding the loans needed to see you through - we also offer advice with repayment and refinancing structures.

Payroll loans and other short-term business financing can lead business owners into a path of spiralling debt that is difficult to recover from without specialist help. There are unfortunately several less-scrupulous online lenders willing to take advantage of struggling businesses by offering high-risk payroll loans with easy application offset by extremely high interest rates.

Business owners who feel desperate and with little time to do full research may sign up to these loans and find themselves struggling to make repayments as the interest piles up.

Clifton Private Finance offer you a full advisory service. We will work with you to find a payroll solution that doesn’t put too much strain on your future finances and can be properly managed to avoid debt spiralling.

Not only that, but as professional and independent brokers, we have access to the full marketplace of UK lenders and will be able to find you the deal you need to get your salaries paid without putting yourself in high-interest debt. 

Payroll Loan Refinancing

Payroll loan refinancing is when you replace any existing payroll loans with a longer-term and lower interest loan. It is typically used when the original plans for payroll loan payments go awry and you find yourself unable to make the repayments as expected.

With payroll loan interest typically higher than those offered by other funding options, such as a long-term asset refinance, refinancing in this way can result in a much more cost-effective solution with lower monthly payments and a significantly smaller overall cost to your business.

Speak to Clifton Private Finance if you have payroll loan problems and would like to consider refinancing. 

Finding a Payroll Loan with Clifton Private Finance

At Clifton Private Finance, we are true believers in the power of lender funding to propel businesses forward, accelerating growth and enabling you to build your business rather than have it stuck just getting by. We know that businesses are always in motion, which means if you are not growing, then you’re going backwards. Business finance is essential to keep that momentum in the right direction.

But we also know that poorly managed, business finance can be an additional cause of stress for business owners, becoming part of the problem rather than a real solution. That’s why we discuss your needs with you closely and ensure that the products you choose are properly suited to your business profile.

If you are looking for help to manage your short-term payroll concerns, then give us at Clifton Private Finance a call. One of our experienced advisors will be on hand to talk to you about all your available options and ensure that you get the payroll loan you need to make sure none of your employees are forced to struggle with a missed salary payment. Contact us today.

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