🔹 What Is Payroll Financing?
Payroll financing (sometimes called payroll funding) is short-term working capital provided by a lender or financing company to ensure a business can meet payroll obligations on time.
Instead of missing payroll or delaying wages, the company borrows funds and repays them once receivables or revenue come in.
🔹 General Guidelines
Loan Structure
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Short-term loans or lines of credit designed specifically for covering payroll.
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Can also be structured as invoice factoring (advancing cash against unpaid invoices).
Loan Terms
- Term length: 1 week – 6 months (very short).
- Rates: Higher than traditional loans — often 1.5%–5% per month, or APR equivalents of 18%–60%.
- Repayment: Weekly or monthly payments, sometimes tied directly to incoming receivables.
Funding Speed
- Very fast — approvals in days, sometimes same-day funding if urgent.
Amounts
- Based on company size and payroll needs.
- Ranges from $25,000 to several million.
🔹 Collateral & Requirements
- Lenders often secure against accounts receivable, contracts, or cash flow.
- Credit matters less than business revenues and invoices.
- Some lenders require a personal guarantee.
🔹 Collateral & Requirements
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Lenders often secure against accounts receivable, contracts, or cash flow.
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Credit matters less than business revenues and invoices.
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Some lenders require a personal guarantee.
🔹 When Companies Use It
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Cash flow gaps (e.g., waiting 30–90 days for clients to pay).
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Seasonal businesses that need extra funds during peak hiring.
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High-growth startups scaling quickly without steady cash reserves.
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Emergency situations where payroll must be met to avoid penalties, lawsuits, or employee turnover.
🔹 Alternatives to Payroll Financing
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Business line of credit (cheaper if you qualify).
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Invoice factoring / accounts receivable financing.
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Merchant cash advances (but very costly).
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Equity injection or investor bridge funding
