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What Kind of Companies Lend to Security Guard Companies

Published 10/4/2012

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Companies that provide security guards generally work on a contract basis with clients. The client company will contract with the security guard company to obtain security coverage for a specified amount of time. Coverage may be required for a single event or for a specific time frame as defined in the contract. Find out how to Finance your Security Guard Company

Security guard companies face many of the same challenges as faced by staffing companies. Security guard companies provide personnel to fulfill the contractual obligation. The security guard company pays the personnel and ultimately, the client is invoiced for the contract. However, the time between provision of services and payment of the invoice may be several months, depending on the specified payment terms in the contract.

Generally, security guard companies do not have large cash stockpiles in the bank to cover payroll, especially in the start-up phase or during periods of growth. Therefore, security guard companies must find ways to cover payroll and pay operating expenses for the business until invoices are paid by clients. Several options for financing payroll expenses are available for security guard companies.

Bank Financing

Traditional bank loans are one option for the security guard company to finance payroll. However, as with any bank loan, the company must qualify for the loan. In many cases, the security guard company may not have established a sufficient credit history that would enable them to borrow from a bank. In other cases, the security guard company may not have a good credit rating, something that is generally required for a bank loan.

Security guard companies generally do not have equipment or property to post as collateral for a bank loan. Other types of companies, such as construction companies, have the option of posting heavy equipment, vehicles or other valuable assets owned by the company to obtain loans. However, companies that sell security services have security guards who provide the service, and the guards' labor is the company's main asset. Security guard companies likely do not have hard assets to utilize as collateral for loans.

Bank financing is often not a viable option for security guard companies.

However, other financing options are available to these companies that will help them cover payroll in times of limited cash flow.

Payroll Funding for Security Guard Companies

Payroll Funding is an option for security guard companies that may not be in a position to obtain traditional bank financing. When a security guard company enlists the services of a payroll funding service, the security guard company has the option to either get financing only or outsource their payroll processing to the payroll funder. In addition, the payroll funding agent covers the cost of payroll per the terms of the contract between the funder and the security guard company.

Payroll funding companies assume the responsibility of cutting the checks to pay employees and finances the payments so long as the client remains in good standing. Employees of the security guard company would provide services to the client companies, and then submit their time sheets directly to the payroll funding agent. Payroll funding arrangements generally have a quick approval process and no collateral is required. In addition, the option of payroll funding is open to companies with poor or no credit histories.

The payroll funding company in some cases may invoice the clients or allow the client to generate it's own invoices. The security guard company's clients pay the payroll funding agent directly. The payroll funding agent takes a percentage of the profits from the invoices after the payroll is covered, and then releases the remainder of the funds to the security guard company.

A payroll funding company may be an option for small companies that provide security services and do not have the human resources personnel to properly manage payroll. Much of the control of the company is handed over to the payroll funding agent. The security guard company basically acts as a staffing company by finding, screening and placing security personnel in contracts. The security company is also responsible for obtaining client contracts. However, the payroll process and the client invoicing and collections processes are given over to the payroll funder.

The advantages of payroll funding are:
  1. Approval is generally fast.
  2. Approval for payroll funding generally involves simply setting up an account with the payroll funding agent. Though the security company will be required to verify their current contracts and the guards' commitments to various clients, the application and set up process is usually completed within three to five days.
Cash Advance

Payroll funding companies like 1st Commercial Credit generally offer the security guard company the opportunity to obtain an immediate cash advance.

Reduce Operating Costs

Payroll funding companies enable the security guard company to reduce the overhead for operations. The security guard company is not required to hire and pay an accounts receivable or a payroll person. Considering the indirect costs associated with those positions, such as the cost of work space, computer equipment, software, etc., the security guard company may significantly cut overhead by partnering with a payroll funding agent.

Any Size Company

Payroll funding agents will work with companies of any size or structure. Payroll funding companies will partner with start-ups, established companies and companies experiencing growth.

Invoice Factoring

Invoice factoring is yet another option for security guard companies to finance payroll. Invoice factoring is similar to payroll funding in many respects. The approval process for invoice factoring is fast, generally just a few days. Factoring is also an alternative to bank loans because the security guard company may obtain funds through invoice factoring with a poor or no credit rating. The factoring company provides immediate cash to the security guard company. Invoice factoring will also reduce overhead costs for the security guard business.

Invoice factoring differs from payroll funding, as well. The security guard company retains control over their payroll process. Security guards provide services and continue to submit their time sheets to the security company. The security company continues submit invoices to clients and the company continues to manage the majority of their own business. The difference between payroll funding and invoice factoring lies in the way that invoice factoring works.

With invoice factoring, the security company dispatches security guards to provide services to the client company. The client company is invoiced by the security guard company. The factoring company verifies that the work has been completed and the client company has been invoiced. All or a percentage of invoices are sold to the invoice factoring company. The factoring company provides immediate cash for the invoices to the security guard company. The factoring company then collects on the invoices from the client company. A fee is collected by the factoring company, and any difference is released back to the security guard company.

Generally, the security guard company will pay more for the access to cash when dealing with a payroll funding agent because more than just cash advance services are provided. The payroll funding agent processes payroll and invoices clients. With factoring, the security guard company will generally pay less for the quick access to cash because the security company retains control over their payroll and client invoicing processes. However, both choices are viable options for cash strapped security guard companies. Neither option is based on the company's credit rating.

When growing security guard companies are faced with a cash flow shortage, bank loans are often not an option. Fortunately, other funding options are available which will provide the security company with immediate cash with a short approval process.

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