Business Payday Loans
Payday loans are short-term commercial loans that provide consumers with rapid cash at a fixed interest rate. The Consumer Financial Protection Bureau states that the majority of them have a $500 maximum and that they can be quite expensive for the borrower. Payday loan borrowers pay back their debt as soon as they receive payment.
Since payday loans are primarily intended for consumers, there aren't technically any business payday loans.
Fortunately, there are less expensive options for short-term business finance that can help you avoid this potentially problematic sort of funding. Examples include:
Invoice financing and factoring
Business credit card
Short-term lines of credit
What Payday Loans Can Do to You
Payday loans frequently carry a hefty fee of $15 per $100 borrowed. When these expenses are added to the typical payday loan sum of $350 and used for a two-week loan, the APR will be close to 400%. As a result, it ranks among the most expensive short-term financing options available, whether for businesses or not.
The fact that it frequently forces cash-strapped consumers into an expensive debt cycle shouldn't come as a surprise. Nevertheless, an online payday loan offers individuals around the nation, funds that can be accessed remotely.
Repayment of Business Payday Loans
As we previously stated, payday loans have no true commercial equivalent because they are based on a fundamentally and exclusively consumer phenomenon: the consumer paycheck schedule.
Business revenue typically comes in on a less regular schedule than the weekly, biweekly, or monthly payments that consumers depend on to make ends meet. But that doesn't negate the possibility of cash flow problems for small businesses, occasionally, while they wait for payment from their clients for the goods and services they provided.
Merchant cash advances
Merchant cash advances are frequently referred to as the commercial version of payday loans by industry professionals.
Small businesses can obtain a lump sum of capital by selling their future credit card receipts for merchant cash advances.
Simply multiply your advance amount by the factor rate associated with your advance to determine the total debt a merchant cash advance would include. For instance, if you receive a $100,000 advance with a 1.25-factor rate, your final debt will be $125,000.
You will repay your merchant cash advance debt using a daily portion of the credit card sales from your company. Until your entire loan is repaid, this daily percentage will be automatically sent to your merchant cash advance provider.
The APRs of merchant cash advances are frequently comparable to those of payday loans, and they are typically close to 400% because of quick repayment turnarounds and high factor fees. Due to their high price and enormous popularity, merchant cash advances have earned the unflattering title business payday loans.
Alternatives to Business Payday Loans
Seeking beyond these business payday loans, which offer alluringly simple funding but can substantially impede your business's day-to-day cash flow and potentially plunge you into a spiral of pricey business debt, is advised if you're looking for business finance that you can obtain and repay promptly.
Look into these more affordable—yet still speedy and simple to qualify for—business funding solutions to avoid business payday loans without sacrificing the capital you require.
Alternatively, short-term loans will be a good substitute for company payday loans if you don't have any unpaid invoices to borrow against but need one-time access to quick money. Similar to compressed forms of conventional term loans, short-term loans function similarly. Similar to term loans, short-term loans are one-time capital infusions that you repay over a defined repayment term together with interest.
But unlike conventional term loans, short-term loans often have a year or less for payback. Additionally, this implies that loans taken out for a short period will have smaller loan amounts, more frequent payments, and higher interest rates.
On the other hand, because of the shorter repayment period, these loans will be quicker to finance and easier to qualify for with many options now available online. Therefore, even though short-term loans will cost more than conventional term loans, they will still be less expensive than the majority of merchant cash advance choices.
They will also be a great substitute for business payday loans due to their speedy application and underwriting procedures.
Invoice Financing and Factoring
Invoice financing is a type of small business financing that has one of the quickest turnaround times available. Business owners can receive funding for their accounts receivable through invoice financing. This idea has a similar framework to a payday loan, but without the exorbitant APRs.
This is because the unpaid invoices you borrow through invoice financing serve as a type of security for the loan. Because invoice financing is self-secured, the lender will be taking less of a risk by giving you funding. In turn, invoice financing will be substantially less expensive for borrowers than payday loans are.
Financing for invoices can close remarkably quickly. Many invoice finance providers can fund applications in a day and make a credit judgment in a matter of minutes.
Business Credit Card
A corporate credit card would allow you to acquire credit nearly immediately if your credit score is at least 580. Looking to a company credit card as a more inexpensive spending alternative may seem illogical. However, business credit card APRs are frequently more reasonable than company payday loans. Additionally, a lot of business credit cards offer 0% introductory APR terms for up to 12 months.
This implies that in some circumstances, you will be able to carry an interest-free amount from month to month for a whole year. However, after that introductory time expires, a variable APR will take effect.
You must make your minimum monthly payments promptly and in full, so bear that in mind. Otherwise, you risk losing the remaining 0% intro APR time. A 0% intro APR card, however, might be the most cost-effective option if you're experiencing a short-term cash flow problem and need to borrow money.
Short-term Lines of Credit
A short-term business line of credit is another quick-to-fund but a less dangerous option to business payday loans. Without the actual card and with access to cash funding rather than just credit, business lines of credit function similarly to business credit cards. With this type of financing, a lender offers a credit limit so that you can draw money as needed.
You must pay back the borrowed money plus interest over a predetermined repayment period once you take money from a business line of credit. However, the portion of your approved credit line that you do not use will not incur interest.
Shorter-term business lines of credit are amazingly quick to fund and simple to apply for. So, the ideal option for a business payday loan, if you're trying to obtain quick money and position yourself for future access to even quicker funding, is a short-term business line of credit.
Now that you've read our guide on business payday loans, we hope you know that you don't have to jeopardize the financial stability of your company to get quick, simple capital. Business payday loans, also known as merchant cash advances, are by no means the only option for quick money today.
All of the options we've discussed in this article will likely be able to provide you with quicker, more convenient funding for any cash flow problems you may encounter.