Financing and Funding Options for Staffing Agencies
December 13, 2022 | Last Updated on: January 27, 2023
December 13, 2022 | Last Updated on: January 27, 2023
In this article:
Starting a staffing agency can be a lucrative and fulfilling business venture, but it may require a significant amount of capital to get off the ground. In this article, we will explore some of the financing and funding options available to help you scale or get your staffing agency up off the ground.
Staffing agencies are companies that recruit temporary and permanent employees for other businesses. Staffing agents become experts on the hiring process and work to make the process smoother for employers so that they don’t have to hire their own HR or recruiting teams. These agencies review the qualifications of applicants and conduct preliminary interviews, significantly decreasing the time of the hiring process for the client. Working with recruiting agencies is common in many industries, including:
You can hire a recruiting agency or staffing agency to fill any open position, from entry-level jobs to executive positions. The processes and procedures may vary slightly depending on the preference of the agency, the niche industry, and the client, but most agencies follow these general practices:
If you’re ready to move from “recruiter” to “owner of a staffing agency,” you may be wondering exactly what needs to be done to start working and making money. Check out this step-by-step guide to opening your new staffing agency.
There are advantages and disadvantages to running a small business and providing staffing services. Before launching your grand opening, consider the following benefits:
One of the most obvious advantages of opening a staffing company is independence. When you start your own business, you have the final decision-making power on things like hours, services, growth strategies, mission statements, back-office culture, and more. Becoming your own boss is an empowering step toward professional success. Other benefits of starting a staffing agency include:
There are many different types of staffing agencies. Your vision may include a one-person shop where you work from a home office, or it may be a multi-location franchised staffing business. The amount of startup money you will need depends on the type of business you’re starting, your location, service pricing, and the business plan. The average cost to operate a staffing agency is $24,560 which may consist of the following expenses:
If you’re ready to launch your new staffing agency, the final step is to explore financing options. There are many different funding companies, online lenders, and traditional banks that have experience working with staffing agencies and startup entrepreneurs. Choosing the right funding will depend on your business goals, business and personal credit scores, fixed assets, and time restrictions. Consider speaking with a small business lender about one or more of the following financing options.
Staffing factoring is also called invoice factoring or payroll funding. It is a type of funding option where the borrower receives a lump sum payment upfront in exchange for unpaid invoices. Invoices are issued to clients in a normal fashion, with a change made to the “remit to” instructions and a copy sent to the factoring company. The provider purchases the invoice and advances up to 90% of its value to the staffing agency. Once the invoice is paid, the factoring company releases the remaining balance to the staffing company, less the predetermined factoring fees.
Factoring is a popular source of funding for recruiting companies because staff agencies are typically forced to wait 30 to 90 days to get paid for their services. Using a factoring company to fund payroll or other working capital needs means you can use your accounts receivable balance and outstanding invoices to cover current expenses, like payroll taxes, utility costs, and rent. Staffing agencies prefer this type of financing because the approval process is easy, upfront funding can occur as soon as the same day, and candidates can be paid promptly.
A business line of credit is a type of revolving credit that works like a business credit card. A line of credit becomes available when a business owner is approved for a maximum credit amount. The borrower can then withdraw funds on that credit line at any time if available credit exists. Repayment schedules for lines of credit typically require the borrower to make monthly payments, where the amount is determined by the amount of withdrawn funds and the interest rates. Lines of credit offer flexible funding since the business only borrows what it needs, so they are very popular among staffing agencies where revenues fluctuate from month to month.
SBA loans are a great small business loan option for many staffing company owners. The U.S. Small Business Administration (SBA) works with registered SBA lenders to guarantee a portion of the loan amount. The SBA backing makes these loans more obtainable for small businesses that are not eligible for a traditional bank loan. There are many types of SBA loans, which dictate the maximum loan amount, repayment terms, and permitted use of the funds. The most common types of SBA loan programs include the SBA 7(a), Microloans, disaster loans, and SBA Express Loans.
SBA loans can be used for any number of reasons and are approved for up to $5 million. The proceeds can be used for working capital, commercial real estate, franchise financing, payroll financing, renovations, debt refinancing, and more. Borrowers repay SBA loans with regular monthly payments that include a fixed or variable interest rate.
A term loan is a traditional type of loan where the borrower receives an approved amount of funding upfront and repays the loan according to the repayment terms. Business loans can be secured or unsecured and may require a personal guarantee. Term loans can be approved for amounts up to $500,000 and the eligibility requirements depend on the lender and the amount of the loan. The application process for a term loan may include a request for personal and business documents including:
A merchant cash advance (MCA) offers small business owners a fast financing option where they receive a lump sum payment upfront and repay the loan with future credit card sales. This is a great financial tool for staffing agencies that receive a large portion of revenue from business credit card sales. MCAs are especially helpful to borrowers with bad credit but can be expensive when processing fees are considered.
Operating your own staffing agency can be a very rewarding experience. Once you’ve narrowed down your business with an industry niche and unique business name, you can get started registering your entity, purchasing business insurance, and connecting with clients. There are many different financing options available to staffing company owners, although many entrepreneurs choose to start with staffing factoring or invoice factoring. If you are ready to consider which business financing option will help your vision become a reality, chat with an expert at Biz2Credit today. Ask them to share the story about how they arranged business funding for The Party Staff, Inc., a hospitality and event staffing agency owned by Brian Lillie.