If you have just started your business or are looking to begin your business then you will probably be in need of some money to get the company off the ground. Whether you need the money to buy supplies, pay employees or pay rent for an office or warehouse space, having funds available and cash fast will be super important to helping your business get off to a successful start.
Not everyone has that money available to them when they start their business and therefore one option could be to borrow money online to help your business. You may only need to borrow a small amount such as borrowing $1000 but that money could be vital to helping your business become a success from day one.
It is important to note that most businesses are not profitable at the beginning, so you must be able to pay back your loan on time with your own money rather than money that you have gained from the business. Many business founders and owners start their business ventures with their own money as well as that of family and friends, willing to take a risk and help them get their business off the ground.
This guide takes you through what business payday loans are, how you can use your business payday loan and whether they are a good idea when you are just starting up your business.
What Are Payday Loans For Business?
Business payday loans are short term loans that allow the consumer to borrow quick cash fast at an increased interest rate to a longer term business loan. There are limits to how much you can borrow with a business payday loan and that will change from lender to lender. You should also always consider the alternatives, which will include loans like traditional business loans or even remortgaging a property or taking out a title loan in the USA.
If you use a payday loan for your business, the loan in question will not last a long time, with most business owners needing to repay their loan as soon as they get their next paycheck or within a couple months of taking out the loan. You will be eligible for a payday loan for your business even if you have a bad credit rating.
Unlike other business loans, these loans are unsecured meaning that the value of the loan is not secured against any asset of the borrower such as their property or car. Therefore, if you default on payments no asset can be repossessed, making these loans much higher risk for lenders, which will be reflected in their fees and charges.
Because of this, the interest rate is much higher and this can lead to potentially bad consequences if you do not repay your payday loan on time including high fees making your payday loan much more expensive then you first anticipated.
Business payday loans can be useful for a number of reasons but it is important to remember that you must have the funds to repay the loan when the time comes to repay.
How Can I Use A Payday Loan For My Business?
There are a few different ways that it might be possible to use a payday loan for your business, depending on what stage your company is at. If your company is just starting you might be using your payday loan for different reasons then if your business is starting to grow after a year or so. Common uses for payday loans for business in the USA include:
- Paying for initial stock
- Paying for some marketing costs
- Designing and setting up a website
- Social media marketing
- Covering a small portion of staff or running costs
Many people will start a business on the side whilst they are still working another job (sometimes called a ‘side hustle’). this means that you can apply for a payday loan with the salary that you have from the first job and use the money for your new business. It is important to have a regular income of at least $800 per month in order to be eligible at all for a payday loan in the USA. Lenders recognize that those looking to borrow money, whether they need to borrow $500 or another amount, may not have a large regular income, but they should have some income, which can then be used to help pay off the payday loan when accepted.
You might want to use the money from your payday loan to help rent a warehouse to store supplies, or even to buy the supplies themselves so that you can get your business up and running without using your own money.
Moreover, you can use some of a payday loan to help pay for part-time employees or shift workers if you need some extra help with the business at the beginning whilst working another job.
However, be aware that when your payday arrives from your primary job, you will have to use that money in order to repay your payday loan otherwise you could face harsh consequences such as a severe negative impact on your credit score. This will harm your ability to be accepted for a loan for your business in the future.
Should I Use A Payday Loan To Start My Business?
It may be a good idea to use a payday loan to start your business in some circumstances. Using a payday loan to start your business could be good if you know you have a stable income from elsewhere which will allow you to repay the loan at your next payday. Always remember that before you do apply for a payday loan for your business, much like if you do so for any other purposes or financial emergencies, you should always explore the alternatives first.
Then, if suitable, a payday loan may be able to help you get a smaller amount of money, for example, if you need to borrow $600 or perhaps $800 to pay for some initial costs to get your business going.
Using the money for supplies, rent and other things could be a good way to get your business off the ground but it is unlikely that your business will make a profit straight away. Therefore always have a way to repay your loan on time otherwise you will face consequences which will not be good for our financial future.
What Are The Alternatives To Getting a Payday Loan For My Business?
Payday loans are a potentially useful way in which to get the money you need, when you need it for your business. Although the money can be in your account as soon as the same day (or even in just a few hours) with a payday loan, you should be mindful that there are alternatives to think about before you apply for a payday loan specifically for your business:
- Speak to family and friends who may be able to lend you the money you need
- See if you can borrow money on your existing credit cards
- Consider traditional business loans
Payday loans are predominantly designed to help with financial emergencies and personal expenses, so you should not consider them a first option when looking to pay for business expenses, although in some circumstances this may be suitable.
What Are The Risks of Getting a Payday Loan for My Business?
There are many risks when it comes to getting a payday loan for business or for personal expenses. The risks will broadly be the same in principle, but with a few differences; taking into account that you are utilizing the loan for business purposes, having borrowed money in a personal capacity. It is unlikely that a lender will allow a registered business, like an LLC to borrow money in the form of a payday loan, but they may well allow an individual to borrow the money then need, to then be used for business purposes. Risks of payday loans for business purposes include:
- The Impact On Your Credit Score – You may decide to borrow money online for your business through a payday loan. This will be achieved by an individual borrowing the money they need, in a personal capacity. Then, when repayments are required, the assumption is that the business will pay the individual the amount due plus interest. However, if the business does not make the money to repay the loan, your personal credit score could be negatively affected, which will negatively impact your personal finances and ability to borrow in the future
- It May Not Be Enough – Payday loans are designed predominantly to lend smaller amounts. Therefore, borrowing $1,000 for example, may not be enough for a business, which may lead to further loans and debt being needed, adding to the burden of debt the business will have
- Length of Loan Term – Because payday loans are mainly intended and meant to be used for personal financial emergencies, their loan terms will usually be quite short; around 30 days, which is when you would receive our paycheck to repay the loan. In business, loans and debt are often required for many months before being able to be repaid. If you do not repay a payday loan on time, it will badly affect your credit rating