For most small businesses, payroll is the single-largest monthly operations expense. The last thing you want is for people to go unpaid. Unfortunately, many small businesses suffer from inconsistent cash flow. That keeps you up nights wondering if you can make payroll. Short-term small business loans can solve this problem. But you have to choose the right one.If you’ve been using your business credit card to get the cash you need, I urge you to stop. That is not a solution, it’s a disaster in the making.
As your business grows, you need more people. Your payroll grows, too. You’ll need more working capital. If it’s available when you need it, you can stop worrying about financing your payroll. Instead, you can concentrate on managing and building your business.
WHY SMALL BUSINESSES RELY ON CREDIT CARDS
Business credit cards offer a ready source of working capital, up to a set limit. The faster you pay your balance, the more cash you have available. Cards are popular for many reasons:
- Easy to qualify
- Quick approval
- No collateral needed
- No time in business requirement
- No personal guarantee. (However, some credit card issuers may require a personal guarantee because there is no collateral. That puts your personal assets at risk if your business doesn’t repay.)
- Can get even with poor credit. (Of course your interest rate will be even higher.)
- Monthly statements make it easy to track expenses
A lot of entrepreneurs use their personal credit cards to fund start-up and early business growth. That’s OK for a while. It shows potential lenders you are literally invested in your company’s success. But you need to wean your business off personal credit as soon as possible.
You should establish a separate credit profile for your business. And keep building your business credit score. If you do, you’ll have many more options when you need to borrow money in the future. You’ll get more favorable terms, too. You may even be able to negotiate lower prices with suppliers. Using business credit cards wisely boosts your business credit. But “wisely” does not mean using the cards for every expense.
WHY CREDIT CARDS CAN BE A DISASTER
It is easy to treat business credit cards like an ATM — except you have to repay the money you take out or charge. You can get several cards, so it’s easy to run up unintended debt load. It’s tempting to pay only the monthly minimum. You convince yourself you’re retaining working capital. But in truth you’re wasting money on interest. And failure to repay the balance negates the point — having cash available when you need it. Misuse or overuse of credit cards also damages your business credit rating.
Business credit cards can be a great option for smaller regular expenses such as utilities and supplies. Or to cover emergency expenses. Or to take advantage of a surprise opportunity. They are not appropriate for financing larger amounts such as payroll.
But often small businesses aren’t eligible for traditional small business loans. So you may see credit cards as your only funding option. I’m here to tell you there are other options. Better options.
A business line of credit, for example.
WHY A BUSINESS LINE OF CREDIT IS BETTER
Business finance expert Marco Carbajo says, “Having access to a source of finding is an essential part of success in business, but not all forms of financing are created equal. Unlike other kinds of lending, a revolving business credit line offers a number of advantages over other types of funding.”
A business line of credit, or LOC, can be unsecured, like a credit card. Or it can be secured with some of your assets such as real estate or equipment. That collateral can help you get a higher credit limit. You’ll have more capital to work with. That makes a business lines of credit better for financing things like payroll.
As with all types of small business loans, though, lenders differ. For example, you could get an LOC from your bank. If you do, they will review the line every year or two. If all is well and your business is growing, you can request a higher credit limit. If all is not well, the bank may convert your line of credit into a regular term loan. Whatever you owe, you’ll have to repay in regular fixed installments. And you won’t be able to borrow more as you repay.
Here at United Capital Source, we’re in the business of helping you find the best small business loans for every purpose. That includes financing your payroll. Because we know hundreds of lenders, we can match you with a business line of credit that offers the flexibility you need to grow your business.
We structure small business loans to fit each client. Effective funding has to match your overall business goals as well as your current need. We want you to see us as a long-term partner when it comes to financing. You can count on us for unbiased advice. Like when I recommend a line of credit instead of business credit cards to cover payroll.
It’s easiest to qualify for an LOC if your business is well-established, has reliable monthly revenue and a strong business credit score. That’s true for all small business loans. Here at UCS, we’re realists, so we know you may have less-than-stellar credit. We can help you anyway. You can get the money you need for payroll, with a loan that will help repair your credit. And you can repay your credit line weekly, bi-weekly or monthly.
The National Federation of Independent Businesses describes a business line of credit as “an insurance policy that never needs to be paid until you need it.” Like when you need to cover your payroll. You can pay your people even when customers are slow to pay their invoices. You can expand your staff quickly to meet seasonal needs. And, as Marco Carbajo says, “you can take your mind off of money and focus on running and growing a successful business.”