Skip to main content

Just as individuals, businesses often run into financial hardships and search for credit options. If you’re a business owner strapped for cash, you may be considering using a payday loan to get your company through the month. However, payday loans are consumer-focused funding aimed at lending to individuals. Here, we run through everything you need to know about using a payday loan for a business.

Do Payday Loans For Businesses Exist?

No, payday loans for business do not exist and, although you can borrow money online instantly, in the form of a payday or cash advance loan for example, these types of loans are not designed for businesses. This is because payday loans rely on their customers’ regular paychecks to offer credit. Although you would not be able to get a payday loan specifically for your business, you can have an individual payday loan and you can use that money for your business if need be.

For businesses, there are specific loans you may consider as alternatives to payday loans. For example, there are specific business lenders who will be used to working with businesses rather than individuals looking to borrow money for personal reasons.

Why Can’t I Get A Payday Loan For My Business?

Payday loans are short-term loans that allow consumer borrowers to access same-day cash easily, but they can be costly. Customers repay payday loans once they get their next paycheck.

As a business, your income is less steady as an individual with a regular paycheck. Therefore, payday loans are not a suitable form of credit for businesses because they cannot offer a stable form of income like a customer’s paycheck or benefits. But of course, it is still tricky for some small businesses to keep up with costs each month, and other similar credit options are available.

Is There An Equivalent to Payday Loans For Businesses?

Business payday loans do not technically exist. This is because payday loans are fundamentally a consumer-focused credit product, whether you take out a 600 dollar loan or if you get a loan for many thousands of dollars. However, merchant cash advances are a financial product for businesses that have been compared to payday loans. They are not technically payday loans but are sometimes referred to as ‘business payday loans’ because of their similarities.

There are alternatives to payday loans which you can explore which can help your individual or business circumstances.

What is a Merchant Cash Advance and is it a Payday Loan?

No, a merchant cash advance is not a payday loan. Merchant cash advances are a form of credit that lets small businesses exchange their future credit card revenue for a cash advance.

Merchant cash advances are paid back through a daily percentage of the business’s takings through credit card revenue. The repayments are automatically rerouted to the lender each day until the debt has been fully paid off. 

Should I Use a Merchant Cash Advance For My Business?

Considering the fact that they are often referred to as business payday loans, it is unsurprising that they come with similar dangers. 

The APRs of merchant cash advances are sky-high, just like payday loans, reaching around 400%. While merchant loans can be tempting because of how easily businesses can access quick cash, they can also be dangerous and send you into a cycle of business debt. To avoid these costly loans, look into more affordable business credit options.

Other Credit Options For a Business

There are other credit options for businesses that are considered less risky. Whether your business needs a $1000 loan or perhaps more, you should always consider each and every one of your options, assessing the impact as well as the potential benefits on your business. Just like when it comes to payday loans and other short term loans, whether they are personal loans or business loans, you should never rush into getting a loan of any amount. Common alternatives to payday loans for business include:

Invoice Financing and Factoring

Through invoice financing, business owners can access very fast, often same-day capital for cheaper. Borrowing with outstanding invoices as collateral makes lending to you less risky so that you can avoid sky-high APRs

Business Credit Cards

You may be able to access a business credit card as a more affordable credit option. In most cases, APRs for business credit cards will be cheaper than ‘business payday loans’. Some business credit cards even offer 0% APR periods for up to 12 months for an introductory period. But remember that anything borrowed with a credit card will have to be repaid in full! 

Short Term Lines of Credit

Short-term lines of credit are less risky than payday loans or merchant cash advances. They work similarly to credit cards, with a credit limit offered by the lender, which you can access if and when you need it. You’ll repay the debt only on the funds that you withdraw over a pre-agreed period. One benefit is that you won’t pay any interest on the money you didn’t use from the credit line.

Short-Term Loans In The USA

Short-term loans can offer an alternative to ‘business payday loans.’ With short-term loans, a lump sum is borrowed and repaid plus interest over an agreed period. Short-term loans usually have a repayment period of less than a year, meaning that interest rates are higher. However, they are easier to qualify for and can be accessed very quickly. There are a range of different short term and long term loan options such as installment loans, cash advance loans and others which you may consider more suitable for your business needs.