- What are payroll loans for small business?
- Why does building your business credit matter?
- The best ways to build your business credit
Q: Can a small business loan be used for payroll?
A: Yes, a small business loan can be used for payroll. That said, access to these loans and the rates offered are contingent upon your business credit. This article explores how to build your business credit so you can get the payroll loans you need.
Your labor is one of the pillars of your success as a small business.
While there is no disputing the work, vision, and consistent innovation that goes into building a successful small business, having the team to execute your plans is just as important.
The key to attracting and maintaining that team is holding up your end of the bargain. Your employees work hard to help you fulfill your dreams, and in return, they expect fair and timely payment.
But life can get in the way of even our best intentions. With the economy on shaky ground, many small businesses are worried about their net profits covering their payroll.
One solution is to take out payroll loans for small business. These loans can give you the cushion you need to keep your business running in times of crisis, ultimately getting you to the other side.
Not everyone can access these loans, though. In times of crisis, many small businesses run to lenders, only to discover they have insufficient business credit.
You don’t want to face that situation. That’s why we’ll be discussing everything you need to do to ensure you have access to cashflow loans for small business when you need them most.
- What are payroll loans for small business?
- Why should you invest in building your business credit?
- The best options for building your business credit
Labor is in Short Supply
The last few years have seen a significant shift in the employee-employer dynamic.
With the pandemic forcing workers of all backgrounds and industries into a period of rest and introspection, many realized they weren’t happy.
Being forced to stay at home, employees reflected on their working environments. A significant number realized they were underpaid, undervalued, and lacked the upward mobility they felt they deserved.
With increased unemployment benefits and stimulus checks coming in, many of these workers also experienced a completely novel level of financial stability.
As a result, they decided to take the power back.
Rather than settle for whatever job they could get, employees chose to stay unemployed until finding suitable work with fair pay and more flexible and remote work schedules.
This started a cascade of employees leaving in favor of starting their own businesses or seeking better employment opportunities.
Many would rather take out payday loans than work in what they feel is an exploitative environment.
As a result, the labor market is dramatically different from it was just a few years ago. Businesses have to work far harder to attract and keep employees.
How You Manage Your Labor is Everything
With this dramatic shift in the labor market, how you manage your workforce has become more important than ever.
Businesses are struggling to stay fully staffed, and they are having a hard time attracting the skilled employees they need to function.
As a result, the existing employees (and business owners) are spread far too thin.
This ends up hurting business. No one has time to handle all the items on their to-do list, they get increasingly stressed, and performance drops even further.
In some cases, this can lead to even more employees leaving, as they simply can’t handle the burnout caused by their overwhelming workflow.
The business isn’t able to function at its full capacity, it gets outpaced by the competition, and eventually, it can even close for good.
On the flip side, businesses that are able to attract and maintain valuable, skilled employees thrive.
Within the current market, these businesses have a huge edge, as the skilled employees contribute to their growth and help them quickly outpace their competitors.
Now more than ever, your employees are one of your greatest assets.
The Economic Pinch on Employers
Despite the value of your employees, you may find yourself worrying about covering payroll.
The economy has certainly taken a beating in the last few months.
The fallout from the pandemic lingers. While the economy has bounced back in some respects, many economists are saying we jumped the gun on declaring the situation resolved.
When people were forced to stay at home, they didn’t have nearly as much incentive to spend their money. They stockpiled it into savings instead.
To cope, businesses scaled back on the production of goods. They couldn’t justify spending money to manufacture things that weren’t in demand.
Then the economy reopened. People began spending again.
But now there isn’t enough to go around, leading to increased prices on many everyday necessities.
This resulted in a net decrease in spending money for consumers. They’ve had to reel in their spending significantly.
That in turn hurts small businesses because they don’t have nearly the same market they once did. When consumers don’t buy, businesses lose profits.
This puts small business owners in a tough place. If they want to get through this economic downturn, they need their businesses to function optimally.
In order to function optimally, their businesses need their key employees. But employees need to be paid, and money is tight.
How can businesses avoid cutting employees and entering into a downward spiral?
Your options are to:
- Try to find cheaper employees, hurting your business
- Pay existing employees less and cross your fingers, or
- Pursue a payroll loan
Enter Payroll Loans for Small Business
Cash advance loans for small business come in many different flavors. You can get a loan to cover almost any type of business expense.
Naturally, small business loans for payroll are among the most sought-after. Payroll is one of the largest business expenses, especially in smaller businesses that operate remotely.
Payroll loans for small business can offer business owners a way out of an impossible situation. The SBA and other organizations can issue loans to be used for payroll so your business can adapt and swing back into profitability instead of shrinking.
Payroll loans, by definition, go towards paying your employees. They serve as a last line of defense before layoffs.
While it may not be as ideal as paying without a loan, using payroll loans to cover salaries keeps your team building. Your business has the chance to expand and become profitable again.
When this happens, you can pay back the loan and return to making income. It’s a one-step back for two steps forward situation.
With employees striking out on their own or finding strong opportunities throughout the market, it’s crucial that you maintain a positive relationship with your workforce.
Payroll loans let you do that, giving you the chance you need to weather economic downturns.
Unfortunately, many find that they can’t access payroll loans for small business. They learn about the prerequisites right when they need them most, leaving them in a desperate scramble.
Not Everyone Can Access Payroll Loans
Getting a payroll loan for a small business requires a few key things.
First off, you’ll need to find a lender. There are numerous banks and financial institutions that offer small business loans, but it takes some research to find the best fit for you.
Your two main options are banks and online lenders. According to Forbes, online lenders have a higher rate of acceptance, as they tend to have fewer requirements for loan approval.
While that might be good news if you’re truly desperate, that increased approval often comes at a cost.
The easier the payroll loan for small business, the steeper the interest rate will be.
Many lenders offer what are essentially payday loans for businesses; loans with insane fees and interest rates that take advantage of desperate situations.
That’s why it pays to access more selective loans. They may be harder to get approved for, but they can save you significant money in the long run.
To access these loans, you’ll need to build strong business credit.
What is Business Credit?
Business credit is similar to personal credit.
Both are ways for a lender to judge the riskiness of offering a loan.
The main difference is that where personal credit is tied to a social security number, business credit is tied to an employer identification number.
In effect, this means that your business credit is a score that lets lenders know how reliable your business is in paying back loans.
While you may think that your personal credit would impact your business credit, it doesn’t. When you form an LLC, your business is completely separated from your personal finances.
Read More: Using A Virtual Address for LLC Registration
This offers you protection and is, on the whole, a good thing. The drawback is that your stellar personal credit doesn’t extend into your business operations.
In some instances, this may actually be beneficial. If you have a low personal credit score, building your business credit can give you access to better loans than you would have had otherwise.
Building your business credit can be done through two primary means:
- Taking out loans
- Using a business account credit card
Taking out loans and paying them back on schedule will help you build credit by showing lenders that you are smart with your borrowing.
You can also use a business credit card to build your credit, which is done in much the same way. Avoiding late payments and using a reasonable amount of your credit line will help you build up your business credit quickly.
Why Should You Build Your Business Credit?
It’s easy to ignore building your business credit when things are going well.
If you have plenty of income coming in, you might not want to spend time acquiring a business credit card or taking out low-level loans just to pay them back. The inconvenience might not seem justifiable.
While this is understandable, it’s also a very near-sighted approach.
Having solid business credit isn’t about the good times. Instead, your business credit is there to provide a much-needed safety net.
Very few businesses grow linearly. Most of them experience times of plenty alongside times of scarcity.
When business owners ignore the possibility of a downturn, they put themselves in a bad position.
Having no or poor business credit means that you won’t be able to access the loans you need to get you through tough times with reasonable terms.
This leaves you with one of two options.
First, you can simply downsize. While this approach will help you save, it also has a strong chance of knocking your business down even further, sending you into a tailspin that is hard to recover from.
This is especially true given the current labor market. If you have to let go of your employees, you may not be able to win them back or find adequate replacements down the road.
That means you’ll lose the key players you need to keep your business growing, leaving you in a bad spot for the future.
The second option is to take loans at exorbitant rates.
If you have no business credit, your options will almost certainly have very high interest and origination fees.
While it might still make sense to take these loans in a pinch, you can wind up paying way more than you need to.
Not only does this cut into your profit, but it can also stifle your business’s recovery. If you were already in a tight spot, having big interest payments might keep you there, even when the market turns around.
Why Building Business Credit Can Be So Frustrating
At this point, it seems obvious that building your business credit is a great idea, both for payroll loans for small business, and for any other financial emergencies that might pop up.
So why isn’t everyone doing it?
It’s because the process can be both expensive and tedious.
You have to spend hours looking through countless lending options to select the right credit card or loan to start building credit.
Many loans or credit cards also require lengthy applications. After sifting through endless web pages, you then have to spend even more time entering seemingly pointless information.
On top of that, your options will typically be expensive. Because you have no business credit, you’re going to be facing the same high origination fees and interest rates you would if this was a real emergency.
It’s no wonder, so many business owners ignore their business credit.
Luckily, there are a few fantastic companies that make building your business credit easy and pain-free.
The Best Options for Building Your Business Credit
Credit Suite
Credit Suite is a business that offers you a framework for building your business credit. They do this through their uniquely-developed 4-step process.
The first step is to build your business credibility. When you sign up for the service, Credit Suite will walk you through everything you need to do to make your business appear upstanding and legitimate to lenders.
From there, you’ll go on to establish credit reports for your business. Credit Suite helps you compile everything you’ll need to apply for lines of credit, making it easy for you to apply.
After all the prep work is completed, Credit Suite will help you get the initial lines of credit you’ll need to get your foot in the door. They’ll help you make the best choice so you don’t end up paying more than you need to.
Finally, after establishing a bit of credit for your business, Credit Suite will connect you to bigger lines of credit.
In turn, this helps you build your credit even higher, all while keeping you from overpaying or wasting time.
After using Credit Suite, you’ll be in an ideal position should you ever need to access a payroll loan for your business down the road.
ECredible
ECredible is one of the easiest and most efficient ways to build your business credit.
ECredible works by connecting directly to your recurring expenses. You can add any number of regular payments to your ECredible account.
Once connected, ECredible simply adds tradelines to these payments. These tradelines make payments eligible for inclusion on credit reporting.
This makes it one of the only options for building credit without having to take a loan or use a credit card.
All of the payments linked with ECredible are then reported to the credit unions, thus raising your credit score over time.
ECredible is truly one of the easiest and most financially-sound ways to build credit on the market. There are no risky loans, no origination fees or interest rates, and no hassle.
Nav
Nav is another fantastic option for building your business credit, even if you’re busy or overwhelmed.
Like ECredible, Nav works by adding tradelines to your business payments. These tradelines make any payment marked eligible for reporting to credit unions.
Nav will take these payments and report them to the unions for you. As a result, you’ll boost your business’s credit score without ever having to file an application for a loan or credit card.
Nav also offers 24/7 access to credit alerts and plenty of credit education resources so you can stay informed and grow your credit into the future.
Key Takeaways on Payroll Loans for Small Business
Payroll loans for small businesses can be the difference between a small bump in the road and entering a downward spiral.
Retaining your employees through an economic downturn helps you keep growing. This in turn allows you to bounce back and return to profitability.
Further Reading
- Types of Costs for Small Businesses: Don’t Miss this Crucial Distinction
- Why Customer-Facing Roles Are Crucial to Your Business
- Is Your Virtual Store Missing This Critical Piece?
Unfortunately, not everyone has access to payroll loans when they need them most.
Without solid business credit, you may not qualify for payroll loans for small business. Even if you do, the rates might be so bad that they keep you in a bad spot once your sales recover.
That’s why building your business credit is crucial. Using Credit Suite, ECredible, or Nav, you can build your credit affordably and easily. This in turn means you can access payroll loans for small business when you need them most.
Build your business credit and you’ll build yourself a safety net for anything that might come your way.
