Business loan for recruitment: Good idea or risky move?

10-minute read

Published March 06, 2025

Your business is growing fast and you need to hire more people to keep up with demand. Maybe you landed a major contract and you need to add new skills and capabilities to your team. Or perhaps you want to hire another salesperson or a marketing expert.

The right people can help you grow faster, drive innovation and boost productivity in your business.

“Sometimes, hiring expenses are unexpected and can strain cash flow. Financing can come in handy to help you take advantage of opportunities without compromising your financial ability to run day-to-day operations,” says Concetta Farina, Account Manager, Virtual Bank, BDC.

However, she says that relying on financing for payroll can create unsustainable financial pressure in the long term, especially if the new hire doesn’t bring enough financial benefits to offset the cost of borrowing.

Financing for recruitment and payroll should be for immediate needs, unexpected opportunities or during a cash flow crunch. It shouldn’t be a permanent solution.

How does financing for recruitment work?

Farina gives the example of a company that used to rely on an external accountant for its financial recordkeeping and taxes.

When the accountant unexpecdtly decided to retire early, the business owner realized that this was an opportunity to hire an in-house bookkeeper. The company had grown fast and they could use a full-time position to help with accounting as well as financial planning and forecasting.

“This was unexpected, so our entrepreneur hadn’t budgeted for adding a new employee on the payroll,” says Farina. “They needed $100,000 for a one-year salary, plus $10,000 for onboarding and training. This is a typical scenario for financing the hiring of new employees.”

What type of financing do I need?

A working capital loan (also called cash flow loan)—a short-term business loan to finance day-to-day operations—is the most common type of financing for hiring new people.

“It’s a multi-purpose loan that can be used to finance a variety of things, from inventory to marketing, salaries and smaller, less expensive pieces of equipment,” says Farina. “It’s an injection of cash. It will give you the liquidity you need for a specific need.”

Cash flow loans have shorter amortization schedules (around 6-7 years) compared to other term loans.

Another way to finance recruitment and salaries is alongside an equipment loan. “Upgrading to a new piece of equipment or technology can also mean that you need to hire for new skills,” says Farina. “It’s common for entrepreneurs to ask for financing to hire new people at the same time they ask for equipment financing.”

Should I use my line of credit to hire new people?

A business line of credit has the advantage of being always there. “It's available cash. But we should use it wisely, for punctual needs and repay it quickly,” says Farina.

Her advice is to avoid using a business credit line for hiring unless it’s for a specific need, such as a short-term contract or outsourcing consulting work.

What documents do I need to apply for recruitment financing?

As for any type of loan, most financial institutions will ask for the following documents:

Company details: Information about your company’s history, current operations, strategy and management team experience.
Financial statements: Banks typically review financial statements to understand a company’s financial health, profitability and capacity to repay debt. For larger loans, statements are needed for the past two years along with interim statements comparing the latest period with the same period in the previous year.
Financial projections: Banks typically require a monthly cash flow forecast for the remainder of the current year and the following 12 months. In some cases, two years of projections may be requested.
How you’ll use the loan: Prepare details about the projected sales increase, plans for using the financing and exactly how it will help your business. “We don't need to see the list of candidates. But we want to see that the entrepreneur thought about their needs and the anticipated benefit that the new employee will bring to the business,” says Farina.

4 essential steps when borrowing to hire a new employee

Follow these steps to improve your chances of hiring the best people and avoid costly and painful mistakes.

1. Plan well and think it through

Take the time to really assess your needs. You might think that you need to hire five people for a project. Considering an annual average salary of $100,000, your payroll would amount to $500,000 per year.

However, after a closer analysis, you may realize that by making a one-time investment of $100,000 in an enterprise resource planning (ERP) and by hiring two more senior employees, you could save more than $150,000 each year and build a more efficient business.

“Don’t underestimate the value of good planning,” says Farina. “We have some very good conversations with our clients when they come asking for financing.”

2. Have a formal hiring process in place

When deciding to hire someone it’s important to make a detailed plan to ensure you hire the best. It starts with assessing and understanding your company’s culture.

What are your values?
What type of mindset and individuals are you looking for?
How will the new hire benefit your business?

Make sure you create detailed job descriptions and that your interviews are well-structured. Once you’ve recruited the right candidate, ensure their buy-in through a solid onboarding and orientation program.

Hiring someone is an investment in your business, but also a risk. A solid recruitment process allows you to find the right people and retain them.

3. Start looking for financing early

With skilled labour difficult to find and retain, the recruitment process can take longer, so start looking for financing as soon as possible. Having the financing approved gives you flexibility and peace of mind to focus on finding the right the people.

4. Make sure you borrow enough

There are additional costs to keep in mind when hiring, besides salaries, benefits and bonuses. Think recruitment and advertising expenses, onboarding and training. What happens if the employee is not a good fit? Do you have the financial flexibility to restart the hiring and onboarding process?

A common mistake is to believe that the person you are hiring will be operational from the first week. “Plan for a learning curve,” says Farina. “Depending on the complexity of the position and your business situation, you may need to invest in 3 or 4 months of training. Budget for that.

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