If you’re starting a new staffing agency, you know there’s not much time to relax. Figuring out financing is one of the first tasks to check off your to-do list. Financing your start-up staffing agency requires diligence, perseverance, and the wisdom to know which option is right for your staffing and recruiting firm. Here’s our tips on how to finance your start-up staffing agency.
Which Financing Option is Right for your Staffing Agency?
Before you run off to apply for every business loan available, sit down with your business plan to figure out exactly what you need and what temporary agency financing option would be ideal for your business. If you don’t have a business plan, stop where you are and read our Starting a Temporary Staffing Company article or check out our Business Plan Template before you go any further. For those of you still with us, take a look at your projected operating costs for the next six months to one year, as well as how long you expect to operate before turning a profit.
Once you finish this, you can start considering your staffing payroll funding options. Your location and the type of professionals you are staffing will both determine what resources are available to you, but there are a few financing options that will be on nearly every start-up staffing agency’s list.
Small Business Loan
The Small Business Administration has taken steps to make small business loans more attainable for a wider range of businesses.
Like any traditional loan, the underwriting process can take anywhere from several weeks to several months and require piles of paperwork. Some of which may involve a pledge of collateral – which a startup staffing agency may not be able to provide. Although the past few years have brought on more relaxed criteria, it is still incredibly difficult for a business without any credit or with less than perfect credit to qualify without the collateral.
Even if you can qualify for a small business loan, there is no guarantee that you will be approved for the amount of cash you need to operate comfortably. If you’re able to be approved, this is a lower-cost option than unsecured financing sources.
Unsecured Business Loan
Also known as a business cash advance, this is a short-term option for financing your start-up staffing agency. These loans do not require collateral like other business loans but do require at least three months of business bank statements.
If you qualify for an unsecured business loan, you have the potential to borrow up to 90 percent of your gross monthly sales. While an unsecured loan might not be optimal for a brand new business, if your staffing agency has at least three months of statements, this is a reasonable option to get you through a crunch.
Merchant Cash Advance
Merchant cash advance financing offers a fixed advance amount in exchange for a business owner’s future sales. Repayment is a fixed percentage, which means if you have a light month, your repayment for that time period would be lower.
In order to qualify, your staffing agency should be in business for at least six months and you, as the business owner, should have a credit score of at least 500. However, like an unsecured business loan, there is no collateral necessary to receive this type of funding, making it easier to qualify than other options. Again, this may or may not be an optimal solution for financing a start-up staffing agency, since MCA loans can be pricey.
Private investment can take several forms, including stock options or a contribution from a friend or family member. Another increasingly popular private investment is from an angel investor who is sufficiently motivated by your business plan to contribute hard cash to your business.
Navigating financial contributions from a friend or family member is always tricky, particularly with the risk that your staffing business does not succeed and your investor loses their contribution. Approach this avenue with care and communication – and ideally, a legal contract.
Angel investors are tricky in their own right. There is usually no pre-existing personal connection, which is useful when negotiating contracts and agreements. These investors also typically have access to more cash than your typical friend or relative.
However, convincing an angel investor to take a chance on your business requires an extremely solid business plan with compelling projections for near-future success and will definitely come with some strings attached. For example, you might not be able to fully control the business that you have decided to start. Further, angel investors tend to gravitate toward projects that draw on their passions or expertise so they can take an active role in the development of the business.
Factoring for staffing agencies is a reasonable option for the recruiting industry. It is not a loan, so you won’t sully your balance sheet with debt to repay. You are only limited by your own invoicing, so as long as you are doing business you have the ongoing potential for factoring. Factoring fees are low and designed to be competitive, and staffing factoring companies have the expertise to navigate the industry with ease.
To qualify for staffing factoring, you must invoice other businesses. Work must be completed prior to submitting a factoring request, and in most factoring arrangements there is a requirement that you repurchase invoice that goes unpaid for a certain amount of time – so working for unreliable clients can work against you.
If you’re planning on starting a staffing agency, there are a lot of tax and employment forms you need that vary by the state you’re located. As a business owner, you’re also responsible for filing tax forms for your staffing company and other paperwork to meet requirements for your state and federal government.
That said, once you have begun placing temporary staff a factoring program may be the ideal solution to ongoing cash flow concerns. Temporary staffing factoring is fast, easy, and business-friendly. It’s designed to help alleviate your biggest financial challenge – employee payroll.
There is no right or wrong way to finance your start-up staffing agency– you, as the owner, just has to do what’s best for your company. Do your homework and tread carefully and you will set your company up for success.
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