Payroll Funding Vs Small Business Loans. Which One Is Right For Your Staffing Company?
If you have a small to medium-sized staffing company, there are many reasons why you may require additional or short-term funding. Perhaps your business is growing at a fast rate and you need more candidates to meet demand, or maybe you are finding that your customers aren’t as forthcoming as they should be in terms of timely payments. Regardless of the reason, the important this is that your staff continue to be paid on time and in full. Asking staff if you can delay payment or just not paying them at all is not only extremely unprofessional but illegal. You will most likely develop a terrible business reputation and may find that candidates and the companies you supply to go elsewhere for their employment and staffing needs. If you are experiencing difficulties then there are a couple of ways you can remedy matters. One is payroll funding and the other is a small business loan. Here we will discuss each in detail which should help you decide which option might be the best for your business.
As we will discuss later, banks have fairly stringent lending conditions. Whilst a small business loan can provide a lump sum of cash straight away should you, for example, be looking to expand or move premises, many businesses do not meet the required criteria. Payroll funding is a great alternative for those in need of financial assistance.
As you will be aware, a 30-day payment term on an invoice is regularly ignored. Whilst most customers will pay on time, many pay one, or even two months later. This not only causes administration headaches and additional staffing time but can severely affect your finances.
Payroll funding allows businesses to borrow money against the value of their unpaid invoices meaning you don’t have to wait for clients to pay you. This, in turn, gives you peace of mind that your staff will be paid on time regardless. This set up works particularly well for staffing agencies but is certainly not limited to businesses of that type.
How it works is pretty simple. Once employees have been provided to your customer, you send an invoice. The payroll funding company purchases that invoice from you for cash (under deduction of a fee) giving you the funds needed to pay your employees. The customer then pays the payroll funding company for that invoice. This alleviates the payment-of-invoice headaches that you are likely to experience and gives you the peace of mind that your staff will be paid on time.
Small Business Loan
The staffing industry has become far more cutthroat over the years. Not only are you up against other staffing companies, but you may also be feeling the effects of businesses advertising directly on social media or other platforms and recruiting directly. Perhaps you want to push brand recognition and launch a marketing campaign letting businesses know why a one on one service will result in candidates tailored exactly to their needs. Maybe your company is already growing and you want to move to new or larger premises. Whatever the reason, a small business loan might be a good choice.
Small business loans are available from banks, credit unions, and many online lenders. Interest rates do vary, and there are a variety of repayment options on offer, so it’s important that you take your time and fully understand the loan terms before applying. When you have found the product that suits your needs the best, be prepared to spend a good amount of time completing the application. You will have to provide information about your business’s current financial position as well as previous years’ finances. You will also be expected to give full and detailed information as to why you need the loan. Many lenders will ask for a business plan, details of your future financial goals and projections for your business. A small business loan allows you to borrow the money needed with a clear timescale for repayment. You know exactly how much you need to pay back each month and can move your business forward quickly.
Borrowing money, regardless of the provider, must be a well thought out and considered decision. Both alternatives could make a hugely positive change to your business and will provide peace of mind as well as potential business growth. If you take some time to review the facts and figures, you will make the right decision for your business.