How to Finance a Growing Security Company

The last decade has been a boom for security agencies. As the security consciousness of the nation has increased, so has the demand for companies that provide security personnel. Private security guards are now guarding airports, large companies, infrastructure concerns and many public places. In summary, these have been financially rewarding times for companies in this business.

At the same time, managing growth has been very challenging for the company owners. Security guard agencies have heavy payroll responsibilities. They must be able to pay their guards on time, every time. The problem is that most of their commercial clients pay their invoices in net 30 to net 60 days. The problem is simple, owners have to meet weekly (or bi-weekly) payroll, but clients pay in 30 to 60 days. So, unless the company has a substantial cash reserve to handle payroll in the interim, it will run into problems. The solution is to get business financing.

For small businesses, getting business financing is easier said than done. Getting a business loan is very difficult in this environment. And anyways, business loans are not necessarily the solution to this problem. Why? Generally, business loans are best suited for buying assets and then paying them down over a number of years. A better solution, and one that eliminates the payment timing problem, is to get and advance against your invoices. This provides the funds you need to cover payroll and operate your business.

How do you get an advance on your invoices? There is a product called invoice factoring that does just that. It provides advances in your slow paying invoices. The proposition is simple. The factoring company advances you funds against your invoices and then gets paid once your client pays the invoice. What separates factoring companies from other solutions is that they provide funding against the business credit of your client. This means that a small company (or a startup) can usually get funded based on the strength of their client. Although the credit worthiness of your client is the most important requirement, it's not the only one. To qualify for factoring, your company must have not liens, judgments and have owners with a good track record.