There are extremely few staffing agency funding companies without a personal guaranty. The very few that do not require a guaranty have other surefire offsetting protections. (Funding companies don’t take dramatically higher risk for nothing.)
What are a few of the lender protections used to provide payroll funding without a guaranty?
- Application of Accounts Receivable Payments – They can apply a customer collection or invoice payment to any account at their discretion, or not apply it. They may set off one account against another.
- Accounts Receivable Collection techniques – They may collect anytime in any manner at their discretion from your customers, often with a Power of Attorney.
- Cash Funding restrictions – Contract fine print allows them to choke off your business, your cash, or your funding availability anytime they are nervous. Without a guaranty they would certainly do this long before a funding company with a personal guaranty might do it.
- Legal Fees – You usually must commit to pay ALL of their legal fees and expenses. This is all fees related to the loan, the accounts, and the funding relationship. It does not matter if they use inside or outside legal council. There are no caps on the costs. They may not have to be reasonable legal fees. It may not matter whether a lawsuit is instigated or not; you can be responsible for all legal and collection costs, and interest and penalties.
- Funding Agreement Default Clauses – There can be funding agreement default clauses that trigger a legal default earlier than other funding company contracts (with a personal guaranty) would.
- Manner of Title to Invoices – Purchase of your invoices, rather than assignment of invoices as collateral for a loan. Regular separate statements may be sent by the funding company directly to your customer in addition to legal notices stamped on every invoice.
- Reserves – They can adjust or manipulate reserves at any time, to any level they want, for as long as they want, whenever they get nervous.
- Floats – Long check clearing or collection holds.
- Credit Limits – Sudden tight credit limits or total unavailability for individual customers. (Funding the so-called 100% of only the “approved” accounts).
- Rates – Tend to be very high, in some cases as much as double what any other company would charge.
Many people work smoothly with 100% and no-guaranty payroll funding programs, and never have any problems whatsoever throughout the entire relationship. At the other end of the spectrum, in absolute worst-case scenarios, the following staffing agency comments represent real-life experience with factoring and payroll funding companies when problems did develop:
“The factoring company hassled our customers and hurt many of our customer relationships. We had to spend too much time undoing relationship damage and helping our customers with the confusion.”
“We had to spend too much of our time trying to track and follow what the factoring company was doing with our clients. You are always two steps behind them. The information about your receivables and payments is too slow, and you have little or no control over when the information gets to you or how it was calculated. You just can’t take the information at face value and must call the factoring company hundreds of times all year to ask questions and get clarifications.”
“The monthly minimums were too steep and the early termination penalty was too large. And they charged so much that you can’t make a profit in a market place that is so competitive.”