Cash flow problems come. 60% of SMBs report cash flow becoming a major issue at some point. Naturally, payroll is one of the largest contributors, as its necessity is consistently immediate.
You always need to cover payroll first. However, when cash flow problems arise quickly, it can be hard to correct the problem quickly. The good news is that you have options.
Covering Payroll: Your Options
You have several options to ensure you can cover payroll. Most involve financing, but financing methods vary in consistency and their effects on your cash flow.
1. Business Loans
Advertisment
Business term loans are the most straightforward option. They are fast, convenient, and can mostly be dealt with online. Even if you are pressed for time, you can get pre-approved for a business loan in the US, UK, Australia, or South Africa in under 24 hours.
For covering payroll, short-term business loans are a common option. These loans are meant to be used over a short period, but then paid back over time at a manageable rate.
You can find explicitly labeled "payroll loans". However, a more common loan type would be working capital loans, which are taken to cover ongoing expenses, including payroll. But most business lenders will give you an option to simply explain that you seek to cover your payroll.
Given the nature of working capital expenses, many modern lenders are willing to work fast. As long as your business financials are viable and your credit is acceptable, you should be able to receive the funds within a few days.
2. Business Line of Credit
A business line of credit is a more flexible tool for covering payroll and other working capital expenses. You can find a line of credit from most of the same lenders who would give you a business loan.
A line of credit is similar to a credit card, as it’s a form of revolving credit. But lines of credit, business or personal, normally carry lower interest rates.
In either case, a business line of credit is always there when you need it. You only have to apply once. After you have one, you can draw funds whenever you need them, and only as much as you need. The credit limit on a business line of credit is the only limit to how much you can borrow.
Compared with term loans, a business line of credit gives you more control over the debt you take on. You don’t need to apply for one knowing exactly how much money you’ll need. When you need to cover payroll but don’t have the funds, you can draw exactly how much you need.
If you have a business line of credit and don’t end up needing it, that’s fine, too. You don’t have to pay unless you draw, and if you repay on time, it’s not so expensive. However, you’ll have to make those repayments faster than if you were to pay a term loan over an extended period.
In the end, a line of credit is a good option to have to fall back on. You get to rest assured you’ll have the funds for payroll if you need them in a hurry.
3. Invoice Factoring
Many business lenders or other companies can also buy your unpaid invoices. If you are waiting for customers to pay you but don’t have enough for payroll right now, this can be a viable option.
With invoice factoring, you basically sell your unpaid invoices at a discount. The discount you provide is your way of repaying the lender, who will take collections over for you. It’s not always the best option financially, but it’s a way for you to turn your unpaid invoices into immediate cash.
4. Invoice Financing
With invoice financing, you can get a loan for payroll by using your invoices as collateral. You retain ownership of your invoices and responsibility for collections, but you can secure a loan with them.
5. Other Financial Measures
If you find yourself having trouble paying your staff, you may also have other options. Some of the most common are personal loans, cost-cutting measures, and government programs.
Some people use personal loan products for some of their temporary or low-cost business expenses. Personal loans are often available to you early, before you’ve established your business well enough. While personal loans are typically much smaller than business loans, they can often be large enough to temporarily cover payroll.
Depending on where your business is operating, there may also be local or national government programs that can help. Government assistance and relief programs are often focused on important expenses like payroll, helping business owners protect jobs.
In some cases, a simple internal audit and redirection of funding can help save the money you need for payroll. This course really depends on the business you’re in, but if possible, it’s worth having a look.
