As you look at loans for your staffing firm, the good news is you have many options available. Let’s take a look at two of the more notable ones, SBA loans and payroll funding.
Let’s start with the Small Business Administration loan program.
This is referred to as the 7(a) loan program. The first step would be to see if you qualify. The general requirements are fairly simple, and as follows:
- Operate for profit
- Be small, as defined by SBA
- Be engaged in, or propose to do business in, the United States or its possessions
- Have reasonable invested equity
- Use alternative financial resources, including personal assets, before seeking financial assistance
- Be able to demonstrate a need for the loan proceeds
- Use the funds for a sound business purpose
- Not be delinquent on any existing debt obligations to the U.S. government
On the “Be small” requirement, the SBA singles out staffing firms (whether exec search, temporary, etc) at $27.5 million or less.
What are the possible loan amounts? The SBA says that, in general, “7(a) loans have a maximum loan amount of $5 million. SBA does not set a minimum loan amount. The average 7(a) loan amount in fiscal year 2015 was $371,628.”
What can you use the loan for? All sorts of things, really:
- To provide long-term working capital to use to pay operational expenses, accounts payable and/or to purchase inventory
- Short-term working capital needs, including seasonal financing, contract performance, construction financing and exporting
- Revolving funds based on the value of existing inventory and receivables, under special conditions
- To purchase equipment, machinery, furniture, fixtures, supplies or materials
- To purchase real estate, including land and buildings
- To construct a new building or renovate an existing building
- To establish a new business or assist in the acquisition, operation or expansion of an existing business
- To refinance existing business debt, under certain conditions
Now let’s look at how that stacks up against payroll funding. As you’ll note from the above list, the SBA loan is by its nature built for all types of businesses. Many payroll funding companies, such as Madison, work only in the staffing industry, and therefore understand the unique nature of the business (i.e., often a lack of physical capital).
Another factor is that there is a cap on the value of your business for eligibility. This, again, is only natural, as it’s a small business loan. So while it may be a great way to get started, it’s not going to grow with you. At Madison, for example, we fund start-ups but also established and growing firms.
Another consideration is the timeline for your loan. SBA loans work through lenders, and depending on the lender it can take an average of 60 to 90 days for approval. As a staffing firm, if you have an emergency, that’s not going to be the ideal solution. Payroll funding gets you loans much more quickly.
Another thing to think about is a standalone loan versus funding companies that provide other services. For example, at Madison we can help you with back office solutions, ATS/CRM, business intelligence and other services. It’s a great way to add a bang to the funding buck, because it removes headaches and let’s you focus on growth.
So in terms of whether to go for an SBA loan or a payroll funding option, the key might be flexibility. Payroll funding companies will partner with you, and grow with you. They offer more services, and faster loans. The SBA is a great program and has helped many small businesses, but is designed as a ‘one-fits-all’ for small business and not specifically devoted to staffing. Either way, it’s good to know that you have options out there.
Why Madison Resources?
We offer more support to help staffing firms succeed than ANYONE else. Fully outsourced back office services. 100% payroll funding. World-class business intelligence. And exceptional staffing technology. Madison Resources gives you everything you need to drive sales, improve recruiting and deliver exceptional service.
At Madison, we’re here to spur growth and we’re customized to help staffing agencies do just that. Contact us and we can arrange a demo of our business intelligence tool and talk about many other resources. For more advice about margins, outsourcing, and other staffing topics, call Madison today.