When Banks Stop Lending: What Staffing Firms Can Do in Uncertain Times

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During this time of uncertainty, you may find that banks and perhaps other funding companies are tightening their credit requirements. This is especially true with staffing firms, who lenders have always seen as high risk and are often the first to be told “no” during times of economic downturn.

Even before the COVID-19 pandemic started shuttering all non-essential businesses and influencing historic unemployment claims, banks were pushing back on staffing firms looking to take on new business. Although banks are in the business of issuing loans, their underwriting process was always at odds with the goals of staffing firms looking to grow. Even for long time bank customers, staffing firms found that bank managers often dragged their feet, required approval from an ever-widening group of executives, and needed to fill out seemingly endless forms to increase their credit lines.

What are my options now?


Another option to fund your payroll needs is using an accounts receivable financier, like Advance Partners. Since we leverage your invoices (accounts receivable) to provide immediate cash for you to continue accepting new business opportunities, we don’t have the same strict credit requirements a bank does.

However, not all accounts receivable financiers are created equal. Most funding companies have to borrow their money in order to lend it to you, so they may have to stop lending if they get cut off from their lender. Also, some are beholden to Venture Capitalist or Private Equity funding, which means they’re just as vulnerable to being forced to tighten their credit restrictions.

In times like these, it’s important to partner with a funder that meets three criteria:

  • Stability: Is your finance partner going to survive a harsh downturn? Will they need to be bailed out themselves? Are they going to be responsive to your needs amidst so much uncertainty? You will need a funder who has proven they can weather even the toughest storms.
  • Capitalization: Where is your finance partner getting their money? If they are a factoring company, their money is likely being borrowed from another senior lender that may have to start restricting access to capital. Banks rely on multiple sources to lend money, so they can be a little more flexible, but their supply is still finite. You will want a finance partner who can give you money when you need it.
  • Flexibility: When the going gets tough, why are businesses like staffing firms always the first to be scrutinized by their funder? Since staffing firms have historically been deemed riskier than other small businesses, they are often the first to suffer when credit starts to tighten. You will definitely want a funder that not only understands but also appreciates staffing firms, what their needs are, and solutions to their challenges.

What makes Advance Partners uniquely prepared to help staffing firms thrive during uncertain economies is that we’re backed by a multi-billion dollar human capital management company, Paychex, Inc. This means we can provide unlimited funding, won’t be going anywhere regardless of the economy, and we don’t rely an outside financing source so we never have to tighten our requirements. And since we only work with staffing firms, we understand the pay/bill components of companies you work with, which means flexible contract terms and pricing structures.

Accounts receivable financing can be a great alternative to banks because you get immediate access to working capital to take on new contracts that you otherwise would have to turn down. Without it, you may lose business to a competitor and the cost of financing is typically built-in to cover your additional business.

 

 

(212) Craig Cohen-1

About the Author
Craig started his career in corporate and commercial banking before joining Advance Partners seven years ago. Craig has taken on several leadership roles within the company, most recently as the Director of Sales. He brings an extensive background and knowledge of credit and risk management to the role. In 2017, Craig was awarded the Commercial Finance Association’s 40 Under 40 Award, which recognizes the high achievers and rising stars in the commercial finance industry.