Funding your growth in 2019: Bank financing vs. payroll funding

If your staffing agency needs funding to grow, a bank is likely to be the first place you turn to. You may even have a relationship with a banking partner already, which can simplify your search.

But traditional bank financing may not be your agency’s best or only option to fund growth. An established payroll funding company that specializes in staffing can provide fast access to capital, along with add-on services to help you grow your business.

Here are some things to consider when evaluating funding options.

Bank borrowing

A bank is a reputable source of financing, offering preferred terms, a direct source of funds, and often, a variety of financing options. That said, banks tend to be risk averse. Staffing agencies with a strong track record of profitability and a good credit history may qualify for a bank loan, but because staffing companies don’t have hard assets (your temporary employees are your collateral), banks will want you to put up personal property, such as your home or car, to obtain funding. That means you could lose your property to the bank if you were to default on your loan.

Borrowing money from a bank also takes time. After a bank verifies all of your information, your agency may still need to wait to complete the application process and qualify for a loan — if you meet the stringent criteria and prerequisites to secure a loan or line of credit. In addition, you’ll likely only get a portion of the money you’ve requested (but you will pay interest on the full amount), which means you could end up borrowing from multiple sources to fund payroll and other needs. Bank loans also include various covenants that must be continually met, or else you might find your company in default. And if your company growth requires additional money — good luck.  If you’re trying to grow your staffing company, the above can slow your progress.

Payroll funding for staffing agencies

Many staffing agencies choose to finance their payroll through a traditional payroll factoring company. These companies offer fast and reliable access to cash regardless of an agency’s credit ratings or assets, ensuring your business can pay employees on time.

Payroll funding entails selling your invoices to get immediate cash, so it’s based on your clients’ creditworthiness, not yours. That means you are not adding debt to your balance sheet, as you are with a bank loan. But you will need to have creditworthy clients to obtain payroll funding. That said, payroll funding companies, especially those that specialize in the staffing industry, are typically much more flexible about who they work with and have a solid understanding of how staffing agencies operate.

Some advantages of choosing a payroll funding company include:

  • Immediate cash flow (advance rates of 90 percent or more of invoice values)
  • Unlimited funding (based on your customers’ credit)
  • Quick application process and credit decisions
  • Flexible terms
  • Funding that grows with your receivables (so you aren’t borrowing more than you need)

Many payroll funding companies bundle their services, including back-office support, client credit checks, etc. So make sure you have a good idea of what you’re getting for your money, whether you’re looking for full-service or money-only payroll funding.

Having predictable cash flow to pay employees is essential for any growing business, but especially for staffing agencies. With the right financing, you can worry less and focus on moving the needle for your company.

Related articles:

The 3 best sources for temp agency payroll funding

Full-service versus money-only payroll factoring

How to grow your staffing agency with payroll funding