Three reasons why banks are limited for financing contract start-ups Three reasons why banks are limited for financing contract start-ups Skip to content

Three reasons why banks are limited for financing contract start-ups

There is a growing demand in the workplace for highly skilled and paid contractors, which is why contract recruitment is at its most lucrative period ever.

Recruitment agencies that place contractors within the professional services, oft require a reliable source of large funding to stem gaps in cashflow.

This is because the interval between paying contractors and receiving payment from clients needs a quick, reliable source of finance to bridge the gap.

With that in mind here are some pitfalls to consider when financing through banks:

Risk-assessment

In the wake of the 2008 recession, banks have become increasingly restricted when offering finance to applicants from start-ups and SME’s, as they consider them high risk.

Ultimately, they dislike transactions when there is no credit or historic transactions to measure against.

Bank limitations

Banks in reality can be a more complicated route to funds than existing financiers. Up to 20% of  your invoice value is withheld until payment from your clients is received by the banks, which can have a seriously detrimental affect on your cashflow and the need to pay contractors up-front.

Without the 20% profit margin your duties to paying contractors and securing new ones are seriously hampered.

Complicated contracts and hidden fees

Recruitment start-ups sometimes fall into the trap of signing lengthy and binding contracts with banks. A typical contract with a bank would be a minimum of 12 months, require personal guarantees and involve a complicated pricing structure.

The sheer length and legal language of these bank contracts can be unclear on how much it will all cost and how it all works. Initial fees are not always representative of how much the total cost will be after auditing, credit checking, and transmission costs have been considered.

Banks have been the default funding choice for businesses, but with finance models now designed uniquely for the recruitment industry they are no longer a necessity.

Sonovate provides easier access to the contract market than ever before, instant access to finance with a fully equipped back-office means Sonovate will ensure candidates are paid, clients are invoiced, and 100% of profit from each placement is received.

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