What Types of Loans Are Available for Your Payroll and Accounting Business (And How To Find Them)

What Types of Loans Are Available for Your Payroll and Accounting Business (And How To Find Them)

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Starting a payroll or an accounting business is going to take a lot of hard work, patience, and dedication. Most of all, it is going to require a substantial amount of start-up capital. Unfortunately, many prospective business owners do not have the funding available to realize their dream of starting their own business. Thankfully, there are several financing options available to you if you need to secure financing to start a payroll for an accounting business. 

There are five types of loans that are available for payroll and accounting businesses. They are as follows:

  • Small Business Administration Loans (SBA Loans)
  • Traditional Bank Loans
  • Non-Bank Lenders
  • Business Line of Credit
  • Merchant Cash Advance

Small Business Administration Loans (SBA Loans)

What Types of Loans Are Available for Your Payroll and Accounting Business (And How To Find Them)

Loans secured through the Small Business Administration are often considered to be the gold standard of business loans. This is because they offer the most favorable interest rates and loan terms available through any of the prospective financing options that are available to those who wish to go into business for themselves. Though the Small Business Administration is not a direct lender, they partner with qualified lenders, while also offering lenders a guarantee against the borrower defaulting on the loan.

Because the SBA can offer lenders an 85% guarantee on the money they lend, many of these banks are willing to lend large amounts of money to borrowers for investments which they may not be able to otherwise afford. With that said, if your accounting or your payroll business’s startup and technology costs are going to exceed an initial investment of more than $10,000, securing a loan through the small business administration is your best option to obtain the financing your business is going to require.

Unfortunately, there are a few downsides to securing the financing for your accounting or your payroll business through the Small Business Administration. They require prospective borrowers to fill out a substantial amount of paperwork, and they are also known for being notoriously difficult to get approved for financing. If you are approved, it can take up to six weeks to receive your funding. However, you can borrow any amount between $5,000 and five million dollars, and take anywhere from 5 years to 25 years to repay the loan. They also offer interest rates of 6.75%, which is one of the more competitive interest rates you can get on a business loan.

You can apply for one of these loans by going to the Small Business Administration website.

Traditional Bank Loans

If the prospect of filling out mountains of paperwork and having to wait up to 6 weeks for approval doesn’t exactly thrill you, you may want to consider securing a loan through your bank to get the capital your payroll or accounting business needs. Traditional bank loans are still the leading source of funding for small businesses throughout the United States, and most national banks have programs that are geared specifically to accounting and payroll professionals.

There is also a certain level of comfort that comes from obtaining financing through a bank with which you have become familiar. Because you have an established history with your bank, they are much more likely to approve you for a business loan than the Small Business Administration. There is also substantially less paperwork involved in this process, and you can be notified of approval within approximately two to three weeks, instead of having to wake up to six weeks to get your approval.

However, securing financing for your payroll or your accounting business through a Traditional Bank does come at one distinct disadvantage. Because of the high risk that is involved with starting an accounting business, or any business that involves dealing with finances, traditional banks are known for having stricter standards regarding their terms. You can borrow anywhere from $30,000 to five million dollars from a traditional bank, with interest rates starting at 7%, taking up to 10 years to repay the loan.

Securing a traditional bank loan is as simple as paying a visit to your local branch, or going to your bank’s website.

Non-Bank Lenders

Non-bank lenders include lenders such as Biz2Credit, Kabbage, and OnDeck, and can provide accelerated approval for accounting and payroll businesses. Several other benefits to obtaining financing through non-bank lenders are that they have shorter approval cycles, lower credit standards, and less paperwork than the other sources mentioned above. However, there are higher interest rates and higher fees attached to loans secured by accounting and payroll businesses because of the relatively high risks associated with that profession.

The biggest advantage of getting your financing through a non-bank lender is the incredibly quick approval process. This makes these lending institutions a viable option if your accounting or your payroll business needs a quick solution to an unexpected financial problem. The major disadvantage to obtaining a loan through these lenders is that they are not subjected to the same regulations and standards as traditional banks. For this reason, you should carefully read all of the documentation included in your loan paperwork.

Of course, there are going to be a few disadvantages that come with securing financing through a non-bank lender, as opposed to going through the Small Business Administration or a traditional bank. For example, the interest rate for a loan secured through a non-bank lender start at 10%, while you may only take up to 18 months to repay the loan. The amount you can borrow is also significantly less with amounts ranging between $5,000 and $250,000. On the bright side, you can get approval in as fast as one business day.

If you are looking to obtain financing through a non-bank lender, you can visit websites such as Lending Tree.

Want to know when you should get a loan for your business?

Business Line of Credit

What Types of Loans Are Available for Your Payroll and Accounting Business (And How To Find Them)

The best way to describe a business line of credit is that they are a cross between a business credit card and a business loan. This financing option has cash that is readily available for you to withdraw, up to a predetermined limit. This type of financing works by having the borrower only borrow what they need from the lender, with interest-only being paid on the amount that is borrowed. Much like a credit card, the funds are available to the borrower whenever they may need them, and interest-only begins to accrue once the money is withdrawn.

Another similarity that business lines of credit may have with business credit cards is that the payment is revolving, which means that the payment quotes fluctuate depending on the amount of money you borrow for your payroll or your accounting business. These lines of credit are also available through traditional banks or non-bank lenders. That makes the process of finding in getting approved for these loans relatively easy.

Perhaps the biggest advantage to securing a business line of credit is that they are rather flexible when it comes to your credit score. Unfortunately, there are usually high-interest rates attached to business lines of credit that are given to borrowers who don’t have strong credit. These interest rates can fluctuate between 7% and 25%, depending on the credit score of the borrower. You can also borrow anywhere from $10,000 to one million dollars with a business line of credit and may take anywhere from six months to five years to repay the loan. Approval for a business line of credit can usually be granted within one business day.

You can secure a business line of credit by going to the SMB website.

Merchant Cash Advance

A merchant cash advance is a viable financing option for a business that is considered to be seasonal, such as payroll for an accounting business. The way that these loans work is that they are granted through a sale that is processed through a debit or a credit card. One example of how a merchant cash advance would be beneficial is if you hire extra staff for income tax season. You could obtain a cash advance in January, and use those funds to pay the additional staff you hired for tax season.

The biggest disadvantage that comes with securing a merchant cash advance is that they are often accompanied by much higher interest rates and fees than other forms of financing. This type of financing is not considered to be a long-term solution, but rather a viable quick fix for a temporary situation. The interest rates attached to a merchant cash advance are dictated by the interest rate attached to your credit card and are usually repaid within a few months. However, it is important to remember that the longer you keep a cash advance balance on your credit card, the more interest it will accrue.

A merchant cash advance can be obtained by contacting you are credit card provider or withdrawing the funds from an ATM.

Conclusion

 As you can see, there are five options of financing that are available to you if you need funds for your accounting or your payroll business. Small Business Administration loans are considered to be the best loans you can get for your business, as they come with the best interest rate and the easiest repayment terms. They are also quite flexible with the amount of money that you can borrow. Traditional bank loans are also a great option for financing, as they have relatively low-interest rates and favorable repayment terms. If your credit is less than perfect, you may want to consider securing a loan through a non-bank lender.

However, they have higher interest rates and are usually less willing to loan large sums of money. A business line of credit works like a credit card because you can determine how much money you want to borrow and when you would like to borrow it. You only pay interest on the amount of money that you are okay with as well. Merchant cash advances are a good option if you need a quick cash infusion, but because of their high-interest rates and less than flexible repayment options, they are not considered to be a long-term solution.

Frequently Asked Questions

 How profitable is an accounting business?

How Much Insurance Do You Need For Your Accounting and Payroll Business?

Accounting and payroll businesses, while often considered to be high-risk businesses, are also amongst the most profitable businesses in the world. According to the website abacus.com, the average profit margin for accounting for a payroll business is 8.9%, which is a direct result of the combination of having relatively low overhead and access to premium revenue. The accounting and payroll industry also shows no signs of slowing down soon.

What are the best financing options available for a small business such as an accounting or payroll business?

While securing a loan through the Small Business Administration, or through a traditional bank, may seem like the most optimal source for funding, there are also other options available to small business owners. Per the website bestmoney.com, here are a few of the best financing options available for small accounting our payroll businesses:

  • LendingTree
  • RapidFinance
  • Biz2Credit
  • BlueVine
  • OnDeck
  • Headway Capital

To learn more on how to plan your own payroll and accounting business click here!

Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.