A business loan for payroll can bridge a gap between paying employees and collecting from customers. Fieldcroft Business Capital, a small-business funding broker in Great Falls, Montana, compares working capital, a line of credit and a merchant cash advance for wages, using Cascade County employer figures, and explains when borrowing for payroll is the wrong move.
Small payrolls, thin cushions
Of Cascade County, MT's 2,472 employer establishments in 2023, 1,252 had fewer than five employees and 539 had five to nine (County Business Patterns 2023). Together those two groups were about 72% of the county's employers. At that size, one customer paying thirty days late can leave a payroll uncovered.
Across all employers, the county paid $1.46 billion in annual payroll in 2023 to 30,050 employees counted in the March pay period. Restaurants show how payroll-heavy some sectors are: the county's 213 food service and drinking places employed 3,578 people, and only 20.2% of those establishments had fewer than five employees.
First question: gap or shortfall?
A gap means the money exists and arrives later: a contractor's draw, an insurer's remittance, a large invoice due in three weeks. A shortfall means the business does not earn enough to cover wages over time. Funding can bridge a gap. Funding a shortfall just adds a payment to a business that already cannot meet its costs.
Write down the payroll date, the amount, and the specific money that will repay the funding and when. If you cannot fill in the last part, talk to an accountant before a lender.
Three ways to fund wages
| Working capital | Line of credit | Merchant cash advance | |
|---|---|---|---|
| Type | A loan | A reusable loan limit | Tomorrow's card takings sold today (not a loan) |
| Fits | One gap, one known payback | Gaps that repeat | Card-heavy sales when other options are closed |
| Goes back by | Fixed installments | Paying down the draw | A share of receipts collected |
| Watch for | Term longer than the gap | A balance that never falls | Total remittance and daily debits |
Working capital suits a single gap. A line of credit suits a business whose receivables always run a few weeks behind payroll. A merchant cash advance is not a loan, and its cost is usually highest; price the other two first.
Cautions specific to payroll
- Wages and payroll taxes are separate obligations; borrowing for net pay does not cover the taxes withheld from it.
- Daily or weekly debits for a payroll advance can collide with the next payroll; line up both calendars.
- Do not stack a second advance to cover the first one's debits.
Sizing the funding to the gap
Borrow for the gap, not the whole payroll. If two of four weekly payrolls fall before a large payment lands, the gap is two payrolls, less whatever cash comes in during those weeks. Funding sized that way costs less and is repaid sooner.
A worked example, with made-up numbers for arithmetic only: a business with a weekly payroll of $6,000 expects a $20,000 receivable in three weeks and has $8,000 in the account. Three payrolls total $18,000, so the shortfall before the receivable arrives is $10,000. That is the figure to discuss with a partner, not $18,000.
Alternatives worth trying first
Ask the customer who owes you whether part of the payment can come early. Ask suppliers whether a bill can wait two weeks. Check whether a deposit on new work can be collected up front. Each of these costs less than any funding, and a partner will often ask whether you tried them.
What a partner wants to see
- Several months of business bank statements showing payroll and deposits
- The receivable or contract that will repay the funding
- Existing debts and any advances still being remitted
- Entity status and existing UCC filings
Our Great Falls, MT page has more on the county's employers, and the blog covers equipment and retail leases.
By Fieldcroft Business Capital · Updated