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Staffing Company Working Capital: Business Loans for Staffing Businesses

Staffing Business Loans

The recruiting and staffing industry is a challenging environment where profound change is taking place. These companies have been providing staffing services for employers for decades, and with time, have come new trends and demands from consumers. Such as with social media where it is explicitly changing the landscape for hiring managers and human resources (HR) departments. Additionally, skilled professionals are now searching for job listings online using search engines and recruitment websites such as www.simplyhired.com, www.monster.com, www.careerbuilder.com, www.indeed.com, and many other sites to find new career opportunities and post their resumes. The sites listed previously are essential vendors dominating the online recruitment market space and are doing so because of the quickly increasing amount of social recruiting platforms changing the dynamics of the industry. However, while it is true that the web has altered the staffing industry, recruiters still focus on referrals, networking, research, and speaking with candidates and analyzing their potential skill sets and motivations to staff the best people possible. Thus, there are many obstacles as well as opportunities to come in 2018.

Quick-jump to the following sections:

What can be found in most agencies can give insights into what is affecting staffing firms and what their top priorities may need to be to stay thriving. As with most firms, they have their plates full as the previous years have brought upon talent shortage, new technology, ambitious revenue goals, and candidate and client engagement. Moreover, with finite time and money, staffing agencies must choose what to focus on to stay ahead of the competition. Which brings us to agencies deciding to make their finances a top priority. 56% of respondents have reported making increasing their profitability and driving revenue a primary goal. The very largest firms with over $250 million in revenue were said to be less likely to place income as their top priority than smaller firms. Instead, employment brand development and marketing were top concerns for large firms. Furthermore, some firms within the larger and smaller sectors showed to be least concerned with accomplishing VMS (Vendor Management System), which is a web-based application that allows an organization to secure and manage staffing services on a temporary, permanent or contract basis.  Although, not taking VMS as serious may be a mistake: about 50 percent of larger companies with a revenue of $100 million use VMS to drive at least a quarter of their profit.

Additionally, the talent shortage is cited to concern more than 60% of staffing agencies as a major obstacle this year. A barrier that can also be seen in the Bureau of Labor Statistics as they have reported more than 4.1 million jobs go unfilled every month. Therefore, vacant jobs have caused a significant gap between the skills needed to perform specific positions and the available talent pool. The gaps can be attributed to workforce demographics, particular skills, immigration policy, lack of education, and on the job training. Additionally, the jobs that are difficult to fill are skilled trades, restaurant and hotel staff, sales reps, teachers, drivers, accounting/finance, and IT staff to name a few. Thus for staffing agencies to try to combat this gab, it requires some ingenuity. Some possible solutions firms are coming up with are creating a flexible work arrangement, finding niche labor segments, and creating partnerships with governments, companies, and education systems. With working methods staffing industries can offer things like flexible hours and part-time employees and as for niche segments, they can start reaching older workers and stay-at-home parents or offshore contractors. Lastly, with the partnerships mentioned before staffing companies can come together to train workers for specific jobs or industries. With that being said, staffing firms that take the time to work with their clients to help find the appropriate people for their positions will be superior in the long run.

Lastly, the staffing industry has been benefiting and utilizing referrals to bring in high-quality candidates. As the single best source of talent, referrals from existing candidates has jumped to the top of the list. As much as 30 percent of staffing companies say referrals are the best source of quality talent and 62 percent place them in their top three. References have also shown to be important in growing your client base. If your company wants to bring in new business, which comes to around 11-25% of the staffing’s revenue, referrals from satisfied clients are essential. By keeping client relationships going strong, firms have cited consistent communication with hiring managers as the best strategy at 86 percent. Followed by quarterly business reviews and performance scorecards. Thus, as long as staffing agencies stay on top of the challenges ahead, and continue to be proactive—about embracing new technology, combating staffing shortages, and delivering client satisfaction; all can lead to continued success.

Types of Staffing Loans & Working Capital

Staffing companies can often use extra capital to help with their business operations. Common types of staffing loans and working capital are bank loans, staffing lines of credit, SBA staffing loans, alternative loans, asset-based financing as well as staffing cash advances. Uses tend to be for working capital purposes (payroll, advertising and marketing, expansion, etc.) but may also use a staffing loan to purchase real estate, refinance business real estate, and well as refinancing and consolidating business debt. Below we’ll take a look at the most common types of staffing company funding.

Bank Lending

Staffing companies looking for long-term loans and working capital with the best rates and longest terms should look to financing from a conventional bank (large banks, small banks, community banks and credit unions). Term Loans for staffing companies are often used to help with expansion, advertising, making payroll and purchasing real estate, but can be used for nearly any business purpose.

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

 

Bank Line of Credit

Staffing companies often need working capital to pay for their workforce, particularly to hire staff and to make payroll. These types of financing needs have to be taken care of quickly, and can wait for weeks or months while the staffing company seeks a term loan. With a line of credit, the staffing company will have access to working capital whenever they need it, without having to seek approval from the lender to access the funding.

Rates 5-15%
Terms 1-2 years
Funding Amounts $10,000-$5,000,000
Collateral A/R Required
Fees Medium costs

 

Unsecured Line of Credit

Unsecured financing, particularly an unsecured line of credit, is a way for staffing companies to access working capital without having to pledge personal or business assets in order to obtain financing. But since business assets aren’t used as collateral for the unsecured financing, the business owner must have fantastic credit to get approved.

Rates 0% for 12 months
Terms 1-2 years
Funding Amounts $10,000-$500,000
Collateral Not be Required
Fees Medium costs

 

SBA Lending

SBA loans are a type of specialized conventional financing that involves an government enhancement that makes the lender more likely to provide funds. SBA loans aren’t provided by the government, but instead they are provided by banks and other conventional lenders and the Small Business Administration agrees to cover most of the lender’s losses should the staffing company fail to repay their loan.

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

 

Accounts Receivable Financing

A/R financing is a type of asset-based lending that involves using a company’s account receivable as collateral for a secured line of credit. The accounts receivable isn’t being sold, but its monitored by the lender, and the line of credit is adjusted up or down depending on how much A/R is outstanding.

Rates 0.5-2.5%
Terms 1-3 years
Funding Amounts $250,000-$10,000,000
Collateral Required
Fees Medium costs

 

Factoring

Factoring your accounts receivable is similar to and A/R line of credit in that the A/R is being used as the basis for financing. The difference between factoring and an A/R line of credit is that with factoring the invoices are actually sold to a factoring company (who then forwards most of the invoice’s value to the staffing company – minus a fee – and provides the remaining balance once the invoice is paid).

Rates 0.5-2.5%
Terms 1-10 years
Funding Amounts $10,000-$5,000,000
Collateral Required
Fees Medium costs

 

Staffing Cash Advance

Staffing companies looking to get immediate financing without much of a hassle may consider obtaining a staffing company cash advance. While this type of financing may be the most expensive of all the commercial lending options, nearly every company can qualify, and cash advances require minimal documentation.

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

Summary

As you can see there are plenty of funding options for staffing companies – especially those looking for short or long-term working capital. While there are many options to choose from, the abundance of options may be confusing to some business owners. If you’re a staffing company and looking for the best possible financing, please feel free to reach-out to one of our funding specialists, and we’ll help you secure the best possible financing.

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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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