Borrowing Money for Payroll
Borrowing money for payroll is fine once in a while, but if it becomes a habit, this is a sure sign that your small business is in trouble. Not all borrowing is created equally. There are methods to do this correctly and ensure that you are not heading down a path of never ending debt.
Borrowing Money for Payroll May Save Your Small Business in Many Ways
Your employees are like the backbone of your small business. They are the ones who answer the phones, lift the boxes, and often serve as your front line in the relationship with customers. Without employees, you would have to perform every job yourself.
For these reasons, hanging on to valued employees is crucial. After all, you don’t want to waste precious time hiring and retraining staff.
There are many ways to lose good employees, from poor management practices to lack of effective communication. Perhaps the quickest way to make capable employees run for the exits is to not distribute salaries on payday.
Many successful small business owners believe they could never be in a situation where they can’t afford to pay their employees. Nevertheless, it only takes something as unexpected as a natural disaster or as simple as a big customer not paying you on time to bring any business to its knees.
One of your biggest and most critical expenses is likely to be payroll. When you
realize that you just can’t make your next payroll, it is a scary, panic-stricken time.
Pitfalls to Avoid When Borrowing Money for Payroll
A famous quote says you should always borrow money from a pessimist because they already believe you won’t pay it back. In reality, anyone who loans you money expects it to be repaid, usually with interest.
The method you use to pay back a loan is even more important than how you
borrow it. Consequently, you should never decide to borrow money for payroll unless you are sure that you will be able to pay it back.
Borrowing money for payroll from a traditional bank is basically impossible. In fact, for a small business to receive any kind of loan from a bank is harder than getting blood from a stone.
Traditional banks require you to have enough collateral to cover the cost of the loan. In addition, you will have to complete a lengthy contract and agree to a long-term repayment schedule, tying you up for several years. All this is unlikely to be of benefit when you need to pay your employees immediately.
You may decide that traditional factoring is the way to go when you need to borrow money for payroll. It is faster than a traditional bank but you should be aware that factoring typically comes with costly fees which get added to the value of the loan. Similar to mainstream banks, the traditional factoring route will also involve a continuing commitment that would last for years.
Also, a traditional factor will require that the funds be repaid from your customers directly to them. When your clients have to write their checks to a factor, it is a sure sign that your business is having financial troubles. This could damage your current reputation as well as taint future business dealings.
The Right Way to Borrow Money for Payroll
When you need to borrow money for payroll, it is vital to do it the right way.
Perhaps the greatest way to borrow money for payroll is by turning to an alternative lender that specializes in this practice, such as Financing Solutions (www.fundmypayroll.com).
There are three important facets to borrowing money for payroll: getting your
application approved, receiving the funds quickly, and the ability to repay the
money in a timely fashion that won’t lead to further financial woes. A cash advance factoring company can satisfy all of these aspects.
With cash advance factoring, you can sell your account receivables and get the fast cash you need to make payroll and unlike a Factor, you only do this once so you are not locked in. Plus, your clients will never know that you got financing because there is no change in where your client’s checks are sent. This course of action provides a quick approval process where you can get an answer in a few hours with the money in your account in a day or two.
You can repay the money in a matter of weeks or months, not years. Best of all,
your customers and employees will never have to know about your temporary cash shortage, keeping them from taking their business elsewhere or finding another job. By using a cash advance company to make payroll, you can then focus on other areas and maintain business as usual.