You have started your business with high dreams. You have even recruited the best talents from LinkedIn and other channels to come and contribute their resources to your dream. However, you are still a start-up and there is no escaping that fact.
As the bearer of the vision and owner of the business, you can work around the clock without payment because your concern is the long-term viability of the business. However, it would be untoward to expect this from your employees. They need to be remunerated for their labor.
So how are you planning on paying their salaries? How will you make enough to pay them when you are barely one year in the business? It may not be possible and this could mean losing your best talent. However, you do not have to let it get to that. You can always take out a loan to make monthly payments and thus retain your best employees.
Even the well-established businesses take loans to pay their employees. For example, consider a seasonal business, which makes little sales during the low seasons. It may not make enough money to pay the employees. However, what it will make during the high season can pay the loan you took out to pay the employees.
This should be a once in a long while thing, or maybe only for when you are starting out. However, if you have to borrow too often for the payroll, then that is an indication that there is something wrong in your business.
Or you could be candid with the employees and tell them that you are going through a hard patch and you will not be able to pay them a certain month. However, at some point later, you will still need to pay them. So while not meeting the payroll might give you a reprieve, it is just postponing the inevitable.
But there are many things to consider when borrowing money for anything in your business. Here are a few things that you should know when borrowing money:
You could always try invoice factoring
That is right, you can always try invoice factoring to get money to meet payroll. This is when you “sell” the invoice to the lender so that they will get paid at the date that the invoice is set to mature. This means they carry the risk, so you get less money for it but still … it is a source of money.
Usually, what happens is that the invoice is financed for 80 percent in advance and then when it is paid, you will be paid the rest 20 percent. Invoice factoring is a good option for financing your payroll because the invoice is the collateral. However, traditional lenders will not be offering the invoice factoring option so it will have to come from other lenders.