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Why Payroll Funding May Be a Better Choice Than a Bank Loan for Your Staffing Agency

Posted by Chelsea Henry

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Mar 25, 2019 9:00:00 AM

Why Payroll Funding May Be a Better Choice Than a Bank Loan for Your Staffing AgencyWhere are you getting the money to pay your job candidates? You’ll need to be sure you have the funds to pay them each and every pay period. You may not be able to rely on incoming funds from your clients either. Clients may pay for your services on 30-, 60-, or 90-day terms. They may also pay late.

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You might think a bank loan will be the solution to your problems. With an injection of cash, you’ll be able to keep operating and paying your workers, at least until your clients’ payments arrive.

The bank loan isn’t always the best option. In fact, you may have a better option available in the form of payroll funding.

What Is Payroll Funding?

Payroll funding is designed to help you manage the demands of payroll. Unlike a bank loan, it offers ongoing support.

In the staffing industry, this is incredibly important. Staffing is often a cash-negative business, with salaries and subcontracting accounting for more than 85 percent of operating costs. The more you grow, the more money you’ll need to pay additional workers, and your new clients’ bills may not be due for 90 days.

A one-time bank loan won’t resolve cash flow issues. Even if you think the issues are temporary, the staffing industry is full of twists and turns. You never know what the business cycle is going to throw at you.

Ongoing Funding as You Need It

What are the advantages of choosing payroll funding over a bank loan? The first major benefit has already been covered. It’s the ability to get the funding you need on an ongoing basis.

Bank loans are one-time injections of cash for the business. While they have their place, payroll is an ongoing expense for a staffing agency. A one-time cash injection is like slapping a bandage over a larger cash flow issue.

Funding designed for payroll recognizes this reality. That’s why it’s also flexible, meaning the amount given can increase or decrease alongside your needs. A growing business will need more, while a business facing a slowdown will need less. Payroll funding acknowledges your changing needs.

Banks Back Loans with Hard Assets

When you go to take out a loan at the bank, you’ll likely be asked to provide collateral. If you’re using the money to buy a house or a car, you can provide this with relative ease.

When it comes to getting ongoing financial help with your payroll activities, though, you may not have the assets the bank wants to see. Without collateral, the bank may not give you a favourable interest rate or may reduce the amount of the loan. Some banks may refuse to offer a loan at all.

Banks Don’t Understand Your Needs

This points to a fundamental problem with using a bank loan to fund your payroll activities. The bank just doesn’t understand your staffing agency’s needs.

Bank loans are rigid, one-time use financing options, unlike flexible payroll funding options. Worse, the bank will ask for hard assets to back the loan, which you may not be able to provide.

Finally, the bank is likely to offer you funds and funds alone. They can’t offer you the expert advice a back office service provider offering payroll funding can offer.

If you’re in need of new financing options for your staffing firm’s payroll activities, consider working with a back office provider that offers payroll funding. You may have just found the best solution for your payroll needs.


Chelsea Henry

Chelsea Henry is the team leader of risk management at The Staffing Edge. Chelsea’s passion for working closely with others in a challenging but rewarding environment is what makes her an important asset to our members. Chelsea has over 10 years of customer service experience—five years specifically dealing with risk management in the staffing industry—and is JHSC certified. Through research, Chelsea helps keep members up to date on current legislation involving employer’s rights, and deals with their day-to-day challenges with labour laws. Outside of work, she enjoys spending time with her family, DIY projects, and photography.
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