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Securing business credit for staffing agencies can be easier than you think. In fact, it is one of the fastest growing industries utilizing receivable financial services. This article will explain how to secure substantial financing for start up staffing agencies.
We will assume you have registered your business (preferably Incorporated), have employees ready to start or already generating billing hours, executed agreements (will be needed by initially funding) with your client, insurance certificates and licenses if applicable to your business.
Banks Rarely Approve Loans for Staffing Companies
First, Let's talk about why bank loans for staffing companies are rarely approved, there are many variables but the main three reasons are the following:
- The first and most obvious, a start up business does not have any or very little financial history to prove it's ability to pay back the loan.
- The second reason is service related industries offer very little tangible collateral, which is what a bank normally likes to evaluate in order to leverage the loan.
- The third reason is a start up staffing company doesn't have any accounts receivable, so you can not leverage your accounts receivable if you don't have any to offer as an asset.
More information about Factoring a Staffing Company
Factoring Companies increase your credit lines as needed whereas banks will not
Although recently banks have considered to lend against accounts receivable, the loan or revolving line of credit is capped and usually approves between 40% to 80% of performing face value. Generally, any account that pays past 60 days will be considered non-performing or ineligible to advance funds against. This advance ratio is far to low in the staffing industry, since payroll and taxes consume the majority of the expenses.
Credit line increases at a bank are also difficult to obtain after the initial loan has been made, increases are usually considered once the loan has seasoned. It is not uncommon to see a start up staffing company blow the top off the first loan cap or advance amount within a few months. The leaves the business facing a severe problem in finding additional funding for payroll or taking on new business.
How are your competitors financing for their growth? In comparison to a bank, a factoring company is becoming the first choice for funding staffing agencies. Factoring companies specializing in staffing receivables is familiar with the invoicing process, time sheets, credit analysis, and advance rates. Typical advance rates for staffing companies start at 80% and may go into the 90% and recourse ranges between 75 to 120 days. As you can see, it is much more leveraged compared to a bank offer.
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The most common requirements for funding a start up staffing agency are the following:
- (note that there no financial statements required up to 250k)
- Copy of articles of incorporation or DBA filing.
- Copy of the executed agreement for each customer to be factored.
- Copy of insurance certificate.
- Sample of an invoice and any back up documentation.
- Credit worthy account debtors (Customers that are sold on credit terms)
- A short application.
- Signed proposal explaining the rates.
- Current aging (Outstanding invoices if any).
- Customer's list with credit limit request.
- Business must be free and clear of any liens.
Accounts receivable based credit lines for Staffing Agencies can be set up in a matter of 5 to 7 working days
A start up staffing agency can set up an account ready to factor and secure financing for services to be performed and invoiced. Invoices and time sheets are sent to the factoring company and usually are funded within 24 hrs. This process makes it simple for the staffing company to have funds readily available for payroll and taxes.
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