What to do when you need recruitment business financing
We examine the top 5 options for funding your recruitment business in the UK
In this article, we take a look at the top 5 options for small recruitment business funding in the UK from government loans to angel investors and joint ventures. Among these choices, you may well find a solution to your situation. And your future success could be just around the corner.
1. A Joint Venture can be a great small-business financing option
You may think a joint venture is available only to large corporations, but it’s actually a great option for small businesses. And that’s true whether you’re needing investment to grow your current business or financial backing to get your new business launched.
A major benefit of joint venture partnerships is that they allow you to retain your own brand, while providing the back-end support you need. That means they not only provide mentorship for your business, but also take care of your financing, admin, tech, HR and marketing needs. And you get to concentrate on what’s most important: winning new business.
In addition, you retain equity in your company and continue to profit share and receive dividends as your business grows. Your new joint venture partner shares in those profits, so there is no up front cost to you and no loan to repay. And because your joint venture partner shares in your growth, they are motivated to help you succeed.
The HR GO Group, which specialises in recruitment joint ventures, also provides a guaranteed monthly salary. So, if you’ve been struggling to make payroll during the pandemic, but have good future prospects, this could be a great option for you. You’ll also want to check out joint ventures if you’ve been itching to get your own start-up off the ground.
2. The government-backed Start Up Loans scheme
If you’re starting or growing a new business, the government is offering a Start Up Loans scheme for UK residents. This program is proving to be popular. And according to their website, applicants can expect to experience some delays. But it’s an option worth considering, especially if you’re new to the business world, and have yet to establish a mature credit history.
The loans are offered at a 6% fixed interest rate. They can be repaid in 1 – 5 years, and there are no penalties for repaying early. One of the advantages of this scheme is that it comes with 12 months of business mentoring. In addition, you can get help with writing a business plan and making cash flow forecasts.
For this option, you must be at least 18 years of age, legally able to live in the UK, trading in the UK and be able to pass a credit check. If you’re looking to grow an already existing business, you need to have been trading for less than 24 months.
This option is open to sole traders, business partnerships and those starting a franchise. If in a business partnership, each partner can apply for a combined maximum of £100,000 per business. You can find out more and apply for funding on the British Business Bank’s website.
3. A government recovery loan for existing businesses
You may be eligible for a business loan for your existing recruitment business through the Government Recovery Loan Scheme (RLS). This offers multiple government-backed financing options including term loans, asset finance facilities, invoice finance and overdrafts. Repayment is 3 to 6 years depending on the financing you apply for. Your business is 100% liable for the debt, but the scheme allows accredited lenders to overlook temporary financial problems due to the pandemic.
This option could be good for you if you’ve always had good business credit and only encountered temporary financial difficulty due to the pandemic. For instance, you may be recruiting for a business sector that had to close to maintain social distancing but is expected to make a full recovery (with a financial infusion) now restrictions are lifted.
Read the FAQs on the British Business Bank’s website for more information. Here you can find out what accredited lenders will need from you, what you can use your financing for, and how much you can apply for.
4. Business Format Franchising
If you’ve always wanted to be your own boss, but don’t want to risk starting a business based on your own unproven business idea, a business franchise might be right for you. In this case, you won’t have your own brand. You will be adopting the brand, reputation, systems, and infrastructure of the recruitment franchisor you choose.
The benefit here is that the franchise has an established customer base, and a successful business model that has been successfully replicated. Studies show that franchises succeed more often than private business start-ups. But your profit margins may also be lower. That’s because your franchise license and royalties can be costly.
However, qualifying for a bank loan to start a franchise may also be easier. That’s because you and they are investing in a proven, viable concern.
If you’re motivated by seeing your own brilliant ideas come to fruition, this will not be the best option for you because innovation will be discouraged. In order to maintain that important brand loyalty, you’ll need to adhere to exactly the systems in place for every outlet of that brand. This puts restrictions on what you can do in your business but it also ensures you’re set up for continued business.
Alternatively, if you have a strong affiliation for a particular brand and want to adopt all aspects of the business to ensure your own success, this is a good option for you. And by being part of a franchise you are also investing in their business culture and networks. This can be really helpful when you’re starting out – as you won’t be entirely alone. And everything you need to get started will usually come as part of the package.
The British Franchise Association can provide you with many current UK franchise opportunities. They also provide training, guidance, support and educational conferences to help you make the decision about whether a franchise is right for you.
5. Angel Investors
This is another option to pursue when looking for funding for your recruitment start-up. Generally Angel Investors are wealthy individuals who are looking to invest in small business start-ups in a particular sector or industry. Usually, only a small portion of their capital is invested in start-ups as the return on their investment can be low. And of course, not all start-ups succeed or even make a profit in their early years.
Typically Angel Investors will expect to share in your profits as with a Joint Venture. However, they don’t always supply the back-office support that you get with a joint venture partnership. And, depending on the investor, they will have varying levels of involvement in the business.
It’s hard to be general about this category, because it can be so varied. The potential scenarios for this type of funding are almost endless. So be sure to thoroughly research potential investors and obtain sound legal advice before pursuing.
There are multiple Angel Investor networks in the UK representing those who invest in different business sectors or regions of the country. A simple Google search for UK angel investors will provide a large list to get you started on your research.
Each option provides its own risks and rewards, pros and cons. But there is something out there for almost every scenario. Whichever option you choose to pursue, we wish you future success.