Can Business Owners Can Use Payday Loans for Their Business?

Can Business Owners Can Use Payday Loans for Their Business?

Can Business Owners Can Use Payday Loans for Their Business?

Business owners are often risk-takers, and are willing to pursue their dream despite obstacles in their way—even if that hurdle is a lack of money. 

When consumers need money fast and don’t qualify for other types of loans, they often turn to payday lenders. Payday loans offer quick short-term loans advanced against the borrower’s paycheck. But they often have very high rates, and are considered a lender of last resort. 

But what if the borrower is an entrepreneur without a paycheck? What payday loans are there for small business owners?

What Is the Best Way for a Business To Borrow Money?

There are many different types of small business loans and financing, each with its own set of pros and cons. One of the most important questions to ask when looking for financing is, “What does my business qualify for?” 

When you apply for business funding, business lenders typically consider at least two of the following qualifications:

  • Business revenue or income
  • Credit (business credit scores, personal credit scores, or both)
  • Time in business

If your business is weak in any of these areas, you’ll need to be able to make up for it in other ways. For example, if you have bad credit you’ll likely need to demonstrate good income. 

Let’s review the most popular types of small business loans and financing and then look at which ones may make sense for your business. 

Lines of Credit

One of the most popular types of small business financing, a business line of credit can be helpful for short-term working capital needs. Once you’re approved for a LOC, you can use the funds, up to your credit limit, as needed. 

Term Loans

With a term loan you’ll borrow a lump sum and pay it back on a set repayment schedule. Repayment terms are usually 2-5 years, though some loans can be for 20—25 years. This is the type of traditional loan that comes to mind when borrowers think of small business loans, and it can be helpful for financing specific projects. 

Business Credit Cards

Another popular type of funding, business credit cards may offer perks like cash back or rewards, but they usually also have a line of credit that can be useful for short-term financing. Most small business credit cards can also help you build good business credit scores if you pay on time. 

Commercial Real Estate Loans

If your business needs to invest in a physical location (storefront, warehouse, manufacturing facility), commercial real estate loans can make that possible. The underwriting process will be intense, and strong qualifications will be required along with a down payment. 


There are several different types of crowdfunding including rewards-based crowdfunding and investment-based crowdfunding. Most types don’t require good credit or a specific time in business. 

Equipment Financing or Leasing

If your business needs equipment, equipment financing or leasing can help to preserve cash flow.

Invoice Factoring or Financing

Invoice factoring or financing can be useful for businesses that invoice other businesses that pay slowly. The factoring company advances funds against outstanding invoices or accounts receivables (for a fee) and may even take over collecting invoices. 

Business Cash Advance

Businesses with strong sales that can’t access more traditional funding may use merchant cash advances or business cash advances. This type of financing advances funds against future sales, using past sales to determine how much to offer. Weekly or even daily payments may be required. 

SBA Loans

The U.S. Small Business Administration offers several different types of loans through the SBA loan program. The most popular loans include 7(a) loans, CDC 504 loans, SBA Microloans, SBA Export loans and more. These loans are made by lenders but the SBA backs them up with a guarantee that makes them less risky to the lender. Terms are good but the application process can be quite involved. 

Vendor Financing

Suppliers may offer short-term financing to their customers. Net-30 terms means the business has 30 days to pay for the items it purchased, and hopefully pay for those purchases out of cash flow. Vendor financing may also help establish business credit

Where Do Businesses With No Credit Borrow Money From?

A business owner who does not have good personal credit may still be able to get business funding if they have strong revenue and at least 1—2 years time in business. The company offering financing will likely carefully scrutinize the type and source of business revenue to qualify the business. Business checking account statements may be required to verify revenues. 

Types of business financing options that don’t require a good credit history include:

  • Business cash advances
  • Crowdfunding
  • Some microloans
  • Invoice factoring or financing

Can You Borrow Money To Start a Business?

Startup financing is some of the toughest financing to secure. As mentioned earlier, lenders prefer to lend to businesses with a proven track record including solid revenues and at least 1—2 years in business (sometimes more). Without those qualifications, you’ll likely need excellent personal credit, and you may even need to provide a personal guarantee to help the lender understand you are serious about repaying the loan. 

Some of the most popular types of startup business loans include:

  • Loans from friends and family
  • Credit cards
  • Microloans
  • Crowdfunding
  • SBA loans
  • Vendor financing

How Much Money Can You Borrow To Start a Business?

There’s no limit overall on the amount of money businesses can borrow to start a business. When there are limits, they are usually tied to the specific lender or the type of loan. For example, investment crowdfunding currently has a limit of $5 million annually, while SBA 7a loans have a total maximum loan amount of $5 million. SBA microloans have a loan limit of $50,000. 

More commonly, the amount of money your business can borrow will be limited by your qualifications or how well you can sell your idea to investors or backers of a crowdfunding campaign, for example. 

What Are the Benefits of the Various Loan Types When Starting a Company?

When you’re starting a company, your small business loan options will be more limited than when your business is well established and making money. Here are some of the benefits and drawbacks of various types of financing for startups: 

Type of financingProsCons
Line of creditFlexibleMay require business revenues/good credit to qualify
Term loanPredictable paymentsMay require business revenues/good credit to qualify
Business credit cardsFlexible, available to brand new businessesInterest rates can be high
Commercial real estatePredictable payments Hard for brand new business to qualify
CrowdfundingFlexible, good credit or time in business not requiredStrong marketing required to attract backers
Equipment financing or leasingAffordable payments, preserve cash flowNew businesses may need good credit and/or down payment
Invoice factoringFast funding, good credit not requiredB2B invoices from creditworthy customer required
Business cash advanceFast funding, good credit not requiredCosts may be high, sales needed to qualify
SBA loanLow rates, favorable termsGood to excellent credit required
Types of loans for small business | Nav

High Interest Short Term Loans for Businesses

We began this article talking about payday loans, which are higher-cost, short-term loans to individuals. In the case of small businesses, there are several types of loans that are used for short-term borrowing and may have higher costs:

  • Merchant cash advances
  • Business credit cards
  • Some lines of credit 
  • Invoice factoring

Should they be compared to payday lending? It depends. Some carry higher rates that make it difficult for the business to turn a profit, while others may carry more reasonable interest rates or fees based on borrower qualifications. 

How Does a Business Cash Advance Work?

With a business cash advance or merchant cash advance, the lender or financing company will review the sales of your business to determine how much to advance against future sales. (A typical advance amount may be anywhere from 50 – 80% of the average amount of past sales.) 

The business will then have weekly or even daily payments taken directly from their business bank account or merchant account until the financing is repaid. Instead of an annual percentage rate (APR), the cost of an MCA is often expressed as a factor rate. 

This type of financing may be very credit flexible and funding is often very fast, within hours or 1—2 business days.

This article was originally written on March 1, 2024.

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