Affordable finance options for recruitment startups in 2023

This is a guest blog by Liquid Link

With a market value reaching £141.2 billion in 2022 after two extraordinary years of post-pandemic growth*, the UK recruitment industry is booming. Every year an increasing number of recruitment professionals are looking to ride this wave of opportunity and go it alone. 

Starting a recruitment business is no doubt exciting, and can be personally and commercially rewarding for those who choose to take the leap. Yet the reality is that an estimated 60% of all business start-ups fail in their first two years, and fewer than half make it to five years. Financial stress is a primary cause of company insolvency, and startup success and longevity is hugely reliant on adequate access to capital and cashflow in the early stages.   

Financial planning & seeking funding  

In common with other sectors, a substantial amount of working capital is required to get a recruitment business off the ground. When turning vision into reality, startups face significant upfront costs. From technology and marketing to payroll and office space, the financial needs of a recruitment agency can add up quickly. Plus, if you’re in contract/temp recruitment, you’ll have contractor wages to pay long before your clients pay their invoices. 

Financial planning is one of the most important aspects of starting a business. Before pursuing finance options, it’s essential to have a well-considered business plan outlining your agency’s goals, target market, revenue projections and anticipated expenses.  

The bank is the most logical place to turn to when you are looking to raise finance, However, it can be difficult for startups to receive loans from commercial banks due to the perceived high risk they pose. More often than not, new businesses get turned away by banks because of their lack of credit and trading history.  

Though securing finance may feel like an uphill battle, there are now more alternatives than ever available to give startups access to the finance they need to grow. Here we explore some of these alternatives in detail:  

Government-backed Start Up Loans 

The Start Up Loans scheme provides personal loans for business purposes up to £25,000. These unsecured loans are offered at a fixed interest rate of 6% over 1- 5 year repayment terms. 

The scheme also offers free access to business mentoring and since its inception has supported over 90,000 business ideas with more than £800 million worth of loans, averaging an average loan amount of £7,200.  

In order to be eligible, your business must be: 

Based in the UK 

• A new business, or trading for under 24 months 
• Able to pass credit checks 
• Eligible under the terms of the scheme 

Aside from this scheme, some highstreet lenders do provide business loans to startups that meet often strict requirements which may call for significant collateral or a Personal Guarantee signed by the business owner.  

Venture Capital Firms 

While venture capital is typically associated with tech startups (it has benefited the likes of Whatsapp and Deliveroo), some venture capitalists may be interested in backing high-growth recruitment agencies.  

To attract venture capital, you’ll need to prove your agency’s scalability and market potential.   

With venture capital funds, financial support is provided to a startup in exchange for equity (shareholding in the business). In addition to finance, venture capital firms are able to help with a business’s strategic needs, often offering entry to new markets and introductions to potential partners.  

There are a number of venture capital firms in the UK offering different levels of investment that startups can approach when seeking finance.  

Invoice Finance 

Invoice finance, especially from a provider that specialises in the recruitment sector, is a highly affordable and sustainable way for recruitment startups to improve business cashflow and working capital and is a great alternative to loans and fixed borrowing. 

Invoice finance (or invoice factoring) allows businesses to release money against the amounts due from their clients. It’s a flexible option that can grow and change to meet business needs. It can help recruitment startups to pay their workforce, and achieve growth earlier than they could if they had to wait until their clients paid their invoice balances.  

As Darren Levers, Director at specialist recruitment finance provider Liquid Link, explains: “Invoice Finance is a crucial facility that allows agencies to ease cashflow and payroll pressures, especially where new start agencies are looking to grow while payrolling the workers weekly” 

Advantages of invoice finance for recruitment startups include: 

• It’s easier for startups to access compared to traditional finance sources like business loans 
• It removes the worry of late invoice payments and alleviates stress for business owners 
• It can be used for normal operations or to fund business emergencies or unforeseen events 
• Credit history is not the main determiner for approval.  

Angel Investors 

Many confuse venture capitalists and angel investors as being the same. However, whereas venture capitalists are large investment companies, angel investors are individuals with high net worth who provide capital to startups in exchange for equity or convertible debt. They often bring industry expertise and valuable connections to the table. 

Angel Investors aren’t necessarily as interested in the demonstrable growth that venture capitalists require, making it relatively easier to get matched with an appropriate investor.  

To use a platform like the Angel Investment Network, you must create a compelling pitch for your business plan and demonstrate your agency’s potential for growth. Once approved your business will be listed for prospective “Angels” looking to invest in a recruitment start up.  

Other alternatives 

While we have specifically considered Start Up loans, Venture Capital, Invoice Finance and Angel Investors here, we have by no means exhausted all the options! Here are a few more ways of raising finance that could be suitable for newly launched recruitment businesses: 

Crowdfunding 

Consider a crowdfunding platform like Seedrs to raise capital for your business. Create a persuasive campaign that highlights your mission and USPs and the benefits of backing your business.  

Grants 

Grants can provide valuable, non-repayable funds to help you launch and grow your recruitment business. Search for grants offered by government agencies, industry associations and non-profit organisations that support small businesses or job placement initiatives.  

Accelerators and Incubators 

Joining a business accelerator or incubator program can provide not only capital but also mentorship, resources and networking opportunities to help your business succeed. 

Strategic Partnerships 

Another option for recruitment startups is to explore strategic partnerships with other businesses in related industries, such as HR software providers or training institutions. Such alliances can bring revenue and additional resources while expanding your reach and capabilities. 

In conclusion… 

Raising finance for your startup recruitment business may involve a combination of these sources and strategies, and we hope this has given you food for thought. 

 The key is to be proactive, persistent and prepared. Craft a compelling business plan, reach out to potential investors and lenders, be open to creative financing options and seek out specialist lenders.   

With a reliable finance stream in place, your new business can thrive and be in the best position to make an impact in the competitive job placement market.  

About Liquid Link 

At Liquid Link (finance division of leading contractor services provider Liquid Friday), we fully understand the ever-increasing cash flow demands of the recruitment industry - contractor wage payments, back office administration and other business pressures. Liquid Link offers invoice factoring and recruitment finance which effectively remove these barriers to growth. Our fast, flexible funding options combine a cash facility with back office,  allowing recruitment agencies to bolt on and off functions as and when they need them. Find out more at  https://liquidlink.co.uk/