Funding a recruitment start-up might seem like an insurmountable task – but, as the economy recovers, and as more funding options present themselves, it is now easier than at any point since the recession to get the cash that you need.
So, as you start your new recruitment business, how might you find funding?
The bank remains one of the most prominent means by which you might finance your recruitment startup. Although bank lending to businesses remains suppressed (despite the bank’s protestations that they are ready to lend), the High Street is still a potential route through which you might find funding. You should make sure, however, that your business plan is strong, paying particular attention to your financial forecasts. You will also need to concentrate on your own personal credit history, as this is likely to be taken into account when making an application.
The government recently launched a new scheme offering finance to start-ups. The Start Up Loans scheme offers loans to new businesses based on the strength of their business plan, and this could be an effective method of financing your recruitment start-up. The average loan extended is just over £5,000, but the total amount you can apply for will depend on the requirements of your recruitment business.
Friends and family
Friends and family are likely to be more sympathetic to your business than the banks, and they may also offer you more favourable interest rates and repayment terms. However, it is important that you treat these arrangements seriously. Make sure that you have a written agreement in place setting out exactly what each side will provide. This will help to ensure that you avoid difficult and costly misunderstandings further down the line.
Crowdfunding is growing in popularity. In this method of finance you borrow from individual, private investors, via a crowdfunding intermediary. Innovative recruitment start-ups may be able to attract cheaper loans on more sympathetic terms through a crowdfunding platform than from a bank. You should remember, though, that you will still need to present a comprehensive business plan in order to encourage investment.
Depending on the nature of your business, you might wish to consider equity finance. Under these arrangements you would give up a portion of your recruitment business in exchange for cash. Several of the prominent crowdfunding platforms offer equity funding, and you might also be able to secure investment of this sort through a so-called ‘business angel’.
Funding as you grow
As your recruitment business begins to secure contracts, you may be able to unlock the value of your unpaid invoices in order to raise cash. Using techniques known as invoice financing, you can receive lump sums based on the face value of those invoices. You will then either chase up the invoices yourself, or you will pass that responsibility onto a third party known as a ‘factor’. Invoice financing can be a great way of raising the cash you need without having to go to the bank, and can be a highly efficient method of smoothing over cashflow issues as your business grows.