How do you finance the purchase of a staffing agency?

The money moves the wrong way

A staffing agency pays before it is paid. Its temporary workers are on its payroll and are paid every week, whether or not the customer has paid for their hours. Customers commonly pay on 30-, 45- or 60-day terms, and large customers buying through a vendor-management program often pay slower than that. The agency is therefore always carrying several weeks of wages, payroll taxes and insurance that it has not yet collected.

Put in plain numbers: an agency with weekly payroll of 100 whose customers pay about six weeks after invoice has roughly 600 of wages tied up in receivables at any moment, plus the employer taxes on them. If sales grow by a third, that float grows by a third too. Growth consumes cash in staffing before it produces any, which is why a buyer who finances only the purchase price, and not the payroll float, can own a growing agency that runs out of money.

So a lender financing a staffing acquisition is really answering two questions. The first is the usual acquisition question: will the earnings after closing cover the debt used to buy the business? The second is particular to this trade: where does next Friday's payroll come from, on the day after closing and in every week the business grows?

In staffing, the purchase loan and the payroll line are two halves of one financing. Lenders want to see both before they commit to either.

How an agency earns, and the lines lenders value differently

An agency's revenue is the bill rate times the hours its workers log. Its real earnings are the spread between the bill rate and the fully loaded cost of the worker: the pay rate plus employer payroll taxes, state unemployment insurance and workers' compensation premium. A worker billed at 30 an hour and paid 20, with 3 of taxes and insurance on top, leaves 7 of gross profit per hour to pay recruiters, offices and the debt. Lenders therefore read gross profit per hour and gross margin by customer before they read revenue. Revenue in staffing can double while gross profit stands still.

Temp-to-hire conversion fees sit between the two: welcome, but not something a lender will count on repeating. Where the earnings a lender underwrites lean on placement fees, expect a more conservative loan amount than the headline figure suggests.

What actually transfers to a new owner

Nothing on an agency's balance sheet is worth much except receivables. What the buyer pays for is a set of relationships, and each one has to survive the change of owner.

• Customer agreements. Master services agreements often require consent to assign, and vendor-management programs at large customers may require the agency to be re-approved as a supplier after a change of control. Lenders ask which accounts need consent and whether it has been obtained. See change-of-control consents.
• Recruiters and account managers. In many agencies the customer relationship belongs to the person who answers the phone. Lenders look for retention arrangements and non-solicitation agreements with the staff who own the largest accounts.
• The worker pool. The database of candidates and the workers currently on assignment are the agency's inventory. A buyer needs them to move with the business, without a gap in pay or employment paperwork.
• Licenses and registrations. Some states license employment agencies or day-labor services, and healthcare staffing carries its own credentialing obligations. The buyer's entity may need its own registrations before closing.
• Workers' comp and unemployment history. Insurers and rating bureaus usually carry the seller's claims experience to the new owner when the same operations continue, and many states transfer the unemployment-tax rating to a successor. An asset purchase usually does not leave a bad loss history behind.

That last point surprises buyers. Choosing an asset purchase rather than a stock purchase still protects against many of the seller's liabilities, such as old wage claims and tax exposure, and most lenders prefer it. It does not reset the insurance and unemployment rates the business will pay next year, and those rates drive gross margin.

The risks lenders price in a staffing deal

Customer concentration. Agencies commonly grow by winning one or two large accounts, and one account can end with a single phone call. A lender will measure gross profit, not just revenue, by customer, and will ask what happens to coverage if the largest leaves. The receivables line enforces the same discipline mechanically: borrowing bases commonly cap any single customer at 20% to 25% of eligible receivables, so a concentrated agency gets less payroll funding than its invoices suggest. See customer concentration in acquisitions and concentration limits.

Payroll taxes. An agency withholds tax from thousands of paychecks. If the seller ever fell behind on deposits, the IRS can file a federal tax lien that sits ahead of the lender on the business's assets. Lenders ask for the quarterly payroll tax filings and proof of deposits, and they check for liens. An unresolved balance is dealt with before closing, not after; see unpaid payroll taxes and new financing.

Workers' compensation. In light industrial staffing, the premium and the claims tail can decide whether the business makes money. Lenders read five years of loss runs where they exist, the experience modifier, open claims and reserves, and whether the agency is on a guaranteed-cost, high-deductible or self-insured program. A high-deductible program with open claims is a liability the buyer inherits in cash.

Classification and co-employment. Wage-hour claims, misclassified workers and joint-employer disputes are the trade's litigation risks. Lenders ask what is pending.

The cycle. Temporary staffing is one of the first things companies cut in a slowdown and one of the first they add back. A lender looks at how the agency's gross profit behaved through its last soft patch, and at whether the debt still clears if hours fall for a year.

The seller. In an owner-run agency the seller is often the top salesperson. Under SBA rules the seller cannot stay as an owner, officer or employee in a complete change of ownership, but may consult for up to 12 months (up to 24 months under SOP 50 10 8.1 from 1 October 2026). Lenders want to see which accounts the seller personally holds and how they will be handed over. See SBA seller transition rules.

How the purchase is usually structured

Because the price is mostly goodwill, SBA 7(a) is the natural fit for owner-operators buying an agency: it lends against cash flow rather than hard collateral, over up to 10 years for goodwill and working capital. The payroll float is funded alongside it with a receivables line: an asset-based revolver where the agency qualifies, an SBA working-capital line, or in smaller cases a factoring facility. Asset-based lenders typically advance 80% to 90% of eligible receivables, and invoices more than 90 days past invoice date typically fall out of the borrowing base.

Two SBA rules catch staffing buyers in particular. First, SBA prohibits an earnout to the seller, so a price tied to which accounts renew has to be restructured, often as a seller note; see earnout vs seller note. Second, SBA will not refinance an active factoring agreement. Many agencies factor, and when the target does, the factor is paid off at closing from the seller's proceeds and replaced with the buyer's own line; moving from factoring to a line of credit explains what that takes.

SBA requires debt service coverage of at least 1.15x, and from 1 October 2026 a change of ownership must show 1.25x on historical results, with financial due diligence on every change of ownership and a quality of earnings report on acquisitions of $3 million or more excluding real estate. For agencies above the SBA limit, see acquisitions above the SBA limit and using a revolver in an acquisition.

Agree what working capital comes with the business. A seller who collects the receivables and leaves the buyer the payroll has kept the float and handed over the bill for it.

Working capital at closing

The purchase agreement decides whether the receivables transfer with the business or stay with the seller. If they stay, the buyer starts on day one with a full payroll and no collections, and has to fund several weeks of wages before the first customer payment arrives. If they transfer, the price should reflect a normal level of receivables, which is what a working capital peg is for. Either way the lender will size the payroll line to the first months after closing, not to the seller's average, and will ask the buyer to show it in a monthly cash forecast. See working capital at close.

If the seller has been making payroll with merchant cash advances, SBA will not refinance them; they are paid from the seller's proceeds at closing, and the lender reads the history as a float that was never properly funded.

What goes in the file

Transparent starts from its standard SBA checklist: business tax returns for two to three years, the P&L and balance sheet, a year-to-date P&L, a debt schedule, personal tax returns and a personal financial statement for each 20% owner, and the buyer's resume. For any acquisition it adds the target's latest full year of figures, never an older year, and the letter of intent. A staffing agency adds its own list:

• Revenue, hours and gross profit by customer for each year and year to date
• AR aging by customer, with days outstanding
• Quarterly payroll tax filings and proof of deposits
• Workers' compensation loss runs, the experience modifier and the current policy
• State unemployment rate notices
• Customer contracts and vendor-management program agreements, with assignment terms
• A roster of recruiters and account managers, with the accounts each one holds
• Any existing factoring or receivables agreement, and its payoff

Once those documents are in, Transparent builds the full lender package, a financing model, lender presentation, blind teaser and underwriting memo, in a day, and takes it to the parts of its book that fit the deal: 278 lenders there write SBA 7(a) and 504, and 235 write asset-based loans and lines. Industry-wide SBA figures for the trade are on the temporary help services data page, and lines of credit for staffing agencies covers the payroll line in detail.