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Professional Service Industry Business Loans: Financing for Professional & Business Services

Loans for Business Services Companies

The professional services industry covers a wide range of occupations as it can consist of any organization or profession that offers customized, knowledge-based services to its clients.  Their characteristics include people that have specialized training in the arts or sciences and can be organized into four different types.  These include law and accounting firms, hospitals, management consultants, and biotechs, all of which are classified by a high knowledge intensity. Frame working the different types helps managers and academics understand how to manage themselves and judge the benchmark of their practices. Although, individually the most significant growth was seen split between design, research, promotional, consulting services, and accounting services within the last year. As these services continue to steadily rise there is a noticeable increase in global macros, technology, and sector trends, which will have an impact on future advancement, are essential to be informed about to understand the shifting challenges that make up the professional services industry

Quick-jump to the following sections:

Those that are employed in the professional services industry are often highly paid, as the industry’s product for sale is knowledge and expertise. Hence, to stay up to date and competitive, professionals in this sector should be aware of several key market trends that are briefly mentioned above. Under technology, specifically social media adoption is vital to finding and engaging clients online, marketing services, and monitoring competitors. This is an understandable step forward since the global web content, search portals, and social media markets have grown increasingly, driven by a profound interest in internet users worldwide along with people’s attitudes towards new ways of communication through social media. An enhanced social media presence aids in professional services firms to improve brand awareness, boost client satisfaction, increase their client base, and deepen client relationships.

As for the model in which professional services are implemented, a change is occurring. A value-oriented revenue model has been taking over the industries old standard from charging their customers on an hourly basis. In line with increasing wages and rapid pressure from clients to decrease pricing, professional firms are shifting towards the value-oriented billing. It is easy to apply to the service industry since the value (such as tax savings, ad placements, damage awards, or the size of acquisition) is explicit. Therefore, it is expected that professional services will deviate to value-based pricing as they try to become “advisors” instead of just being service providers paid by the hour. This shift can help professionals increase their revenues and profitability.

Additionally, we have the emergence of modularization, meaning we are now seeing services split into several individual components and sold separately in preference to bundles together. A rising number of clients prefer to pick and choose service elements that can be executed in-house and assign the rest to specific service providers, resulting in modularization of services. A scenario in which this would be desirable is when a single service company is not able to handle the complexity of a massive project and hence, is willing to approach four to five organizations to work together. The client may desire to break down the project into various small components that can be allocated to particular professional firms. Thus going forward, professional services should strategize specializations that develop to enable them to cater this trend, and they should be looking for opportunities to collaborate with other professional services on a single project.

Next, we have Automation of back-end services as it is becoming increasingly important for companies to eliminate paper-driven processes. Companies such as accounting and legal serves individually are automating back-end processes to match front-end services. As a result, these companies are steadily increasing to electronic check records from old methods of scanning and filing paper checks. Furthermore, automation enables companies to reduce operational costs and time to service customer requests. For example, a report by McKinsey, a leading bank, automated about 900 of its back-end operations to relieve about 50% of its full-time workers from their back-end task. The benefits do not stop there; automation has also contributed to the overall growth of information technology market that is predicted to reach 1.2 trillion by 2020. Professional services companies should consider automating their back-end operations to save on operational costs and improve on customer requests service time.

In conclusion, as the industry is expanding rapidly, to stay up-to-date from what has been discussed in this article, firms should focus on engaging social media for communication with their clients and growing brand awareness. Create and employ virtual teams for cutting business costs. Change the working model to the value-oriented revenue model. Put into action modularization to give services to a wide range of companies, and lastly automate all back-end offers to cut down paper-driven practices; all of which can keep your business and services on track for the coming years.

Types of Professional Service Company Loans

There is no shortage of financing options for professional and business service companies. The key is to obtain the best possible loan for your company, with the lowest rates, least fees and longest terms. Below, we will take a look at the financing options available to professional service companies, and compare the pros and cons.

Professional Service Bank Loans

Conventional bank lending is the most common type of financing sought by companies in the professional service industry. The reason bank term loans are the preferred type of financing is because the rates are the lowest among commercial financing companies, and the terms are the longest – which by having the longest terms, you will have the lowest monthly payments. Most common types of financial institutions that offers professional service bank-rate lending are large banks, small banks, credit unions, non-profit and community lenders. Uses of bank financing run the full-range, including acquisitions, refinancing and consolidation of debt, working capital, marketing, advertising, making payroll and any other operating capital use.

Rates 5-15%
Terms 1-30 years
Funding Amounts $50,000-$5,000,000
Collateral Required
Fees Medium costs


Professional Service Line of Credit

Bank lines of credit are a great type of financing for professional service companies seeking access to bank-rate financing without having to seek approval from a bank each time they draw on the funds. Bank lines of credit are usually secured by a professional service company’s accounts receivable and may have strict covenants. Lines of credit are generally used for working capital purposes including making payroll, advertising, hiring employees, paying short-term obligations, repairs and upgrades and other short-term uses.

Rates 6-15%
Terms 1-2 years
Funding Amounts $100,000-$5,000,00
Collateral Required
Fees Medium costs


Professional Service SBA Lending

SBA lending is a form of financing provided to professional service companies who are seeking bank-rate financing but have been unable to get approved for a loan through a conventional bank or traditional lender. SBA loans for professional service companies aren’t provided by the government but are instead originated with a conventional lender in which the lender is guaranteed to have a large portion of the loan covered by the Small Business Administration should the borrower default. SBA loans are used for acquisitions, startup financing, refinancing debt, consolidating debt, purchase or refinancing real estate, working capital, equipment purchases and just about every type of business use one can think of.

Rates 5-8%
Terms 3-25 years
Funding Amounts $50,000-$5,000,000
Collateral Required
Fees Medium costs


Business Service Unsecured Line of Credit

As opposed to a secured line of credit that is usually collateralized using the company’s accounts receivable, an unsecured line of credit doesn’t require specific business collateral to get approved. Professional service companies can get approved for an unsecured line of credit by simply having a good credit rating. To get approved for a professional service company line of credit, the borrower must have a credit score over 680, and have personal credit cards that have not been maxed-out. If you are approved for an unsecured line of credit, the professional service company can pay as little as 0% APR over the course of the first twelve months.

Rates 7-25%
Terms 1-5 years
Funding Amounts $50,000-$500,000
Collateral May not be required
Fees Medium costs


Business Service Factoring

Factoring is an alternative type of financing offered primarily by asset-based lenders that involves accessing money that your customers owe to you before being paid. By selling your business-to-business invoice to a factoring company or asset-based lender, a professional service company can access up to 90% of the invoice’s value upfront and obtain the rest after the customer has paid the invoice (minus a small fee paid to the factoring company). The key to factoring is that the invoices must be from a business and not a consumer.

Rates 0.5-5%
Terms 1 year
Funding Amounts $100,000-$5,000,000
Collateral Required
Fees Medium costs


Asset Based Business Financing

Using your professional service business’s assets as collateral is another way your company can obtain affordable financing. The most common asset used for asset-based financing is accounts receivable – particularly 0-60-day A/R. Asset based financing usually is structured as either a line of credit, or a factoring line. With a professional service company line of credit, the accounts receivable is used as collateral, whereas with factoring, the professional service company’s accounts receivable is sold to the asset based lender at a discount.

Rates 8-25%
Terms 1-5 years
Funding Amounts $10,000-$5,000,000
Collateral Required
Fees Medium costs


Short Term Business Loans

Short term alternative financing is generally offered by non-bank, marketplace alternative business lenders. Professional service companies seeking short-term alternative financing generally do it for working capital to help with the company’s operating expenses. The nice thing about short-term alternative loans is that they require minimal paperwork and can be funded in a matter of days. But the ease of funding comes with a cost, as an alternative business loan for professional services companies can be expensive.

Rates 8-25%
Terms 1-5 years
Funding Amounts $10,000-$500,000
Collateral Not required
Fees Medium costs


Business Cash Advance

For professional service companies seeking fast financing with minimal paperwork, a good option could be a merchant or business cash advance. A professional service cash advance is the sale of the company’s future revenue in order to obtain immediate financing. While a cash advance is easy to obtain just from a paperwork and speed aspect, its also easy to obtain if you have bad or poor credit, as the professional service company’s credit is not the main factor in determining whether you’re approved – instead its all about cash-flow.

Factor rates 1.10 – 1.50
Terms 3-24 months
Funding Amounts $5,000-$2,000,000
Collateral Not required
Fees Low to High costs


Just about every small business will seek financing at one point or another. As you can see, there are lots of options available to help fund your business. But having lots of options can be an issue if you don’t fully-understand what each option entails. If you have a professional service business, and you’re seeking financing for your company, please reach-out to one of our financing specialists, and they’ll help you navigate the process.

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About the author
Domonique Cox

Domonique is a Minnesota native that earned her bachelors from The University of Arizona with a degree in English and Film Studies. Though books and writing are not her only interest, you can find her engaging in nutritional sciences, environmentalism, vegan cuisine, filmmaking, old school dancing, tennis, running, sound engineering, and enjoying satirical dark comedies or listening to the poetic lyrics of Bob Dylan. She is now based in Los Angeles as a content writer for GUD Capital where she spends her spare time honing her writing and directing skills. 

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