How do security companies refinance merchant cash advances?

Two businesses under one name

Security companies come to a lender in two shapes, and many do both. The squeeze that produced the advances is different in each, and so is the refinance.

A company that does both should expect a lender to separate them in the numbers: revenue, gross margin and receivables for the guard side, recurring revenue and cancellations for the alarm side. They are financed differently and they fail differently, and a blended P&L hides both.

Guard companies: growth that empties the payroll account

A guard company's margin is the spread between the hourly bill rate and the fully loaded cost of the officer, and it is earned only when the client pays. Officers are paid weekly or every two weeks. Clients pay on their own schedule, and property managers, general contractors and public agencies are rarely quick about it.

So every new contract costs cash before it makes any. Take a site that costs 100 a week in payroll and bills 125 a week, with the first payment arriving about six weeks after the site opens. By then the company has put out about 600 in wages for that site alone, and every later week's wages are still paid before that week's bill is collected. Win three such sites in a quarter and the payroll account runs dry while the P&L shows the best quarter the company has had. That is the moment an advance is offered, and its daily debit then comes out of the same thin spread the new contracts were supposed to earn.

This is a receivables problem, and receivables are what should fund it. Factoring or an asset-based line advances against each invoice as it is issued, so the payroll for a new site is funded as the site is billed, and the facility grows with the contract book instead of fighting it. Asset-based lenders typically advance 80% to 90% of eligible receivables. See lines of credit for security guard companies and factoring vs asset-based lending.

A guard company that is growing will need financing for payroll again next quarter. A refinance that only retires the advances, with nothing to fund the next contract, sets up the next stack.

Alarm companies: paying today for revenue that arrives over years

An alarm company that adds a subscriber pays for equipment, installation labor and sales commission up front, and earns that back from monitoring fees over the life of the contract. The faster it grows, the more cash it spends ahead of revenue. A company adding accounts quickly can have rising recurring revenue and a falling bank balance at the same time, which is exactly the profile an advance funder looks for.

Advances are a poor fit for this business for two reasons. They are repaid in months against an investment that pays back over years. And they threaten the asset itself: a company that cuts technician coverage or service response to make daily debits sees cancellations rise, and attrition is the number a lender values an alarm company on.

The refinance is usually a term loan underwritten on earnings and on the quality of the recurring revenue. Lenders who specialize in the industry look at monthly recurring revenue, cancellations by month, how many contracts are still in their original term, whether the company owns its accounts outright or monitors them under a dealer program, and who does the central-station monitoring. A clean attrition history is worth more to this refinance than anything else in the file. Some owners retire advances by selling a block of accounts instead; that sells future revenue to pay for past debits, and it deserves to be weighed against a loan before it is done.

What every security company's file needs

Lenders who finance security companies have seen how these files go wrong: a lost anchor contract, a payroll tax lien, a lapsed license. A complete file answers each before it is asked.

• A contract schedule: every client and site, the bill rate or monthly fee, start and end dates, and renewal terms. For alarm accounts, the account count, monthly recurring revenue, and cancellations by month for two to three years.
• An accounts receivable aging by client, with days outstanding. Receivables more than 90 days past invoice are typically ineligible, and borrowing bases commonly cap any single client at 20% to 25% of eligible receivables.
• Payroll tax filings and proof of deposit for the last several quarters. Guard companies under advance pressure sometimes fall behind on payroll taxes, and a filed federal tax lien can rank ahead of a new lender. See refinancing with unpaid payroll taxes.
• State licenses for the company and its officers, and insurance certificates: general liability and workers' compensation, and errors and omissions for alarm companies.
• P&L and balance sheet for the last full year, a year-to-date P&L through last month-end, and business tax returns for two to three years.
• Every advance agreement, a current payoff letter for each, a debt schedule, and bank statements for the months the advances have been debiting.
• A short account of why the advances were taken, tied to the contract or the growth that caused them.

Clients that complicate the collateral

Not every receivable can be pledged in the ordinary way. Payments due under a federal contract can be assigned to a lender only through a formal assignment of the contract's payments, and many state and local agencies have rules of their own. Lenders still finance these receivables, but the paperwork has to be done before they count. Invoices to a client that also sells something to the security company are contra accounts: the client can offset what it owes, so lenders reduce or exclude them. See eligible vs ineligible receivables and lines of credit for government contractors.

Concentration is the other issue. A guard company whose largest client is a big share of billing will find that its borrowing base counts only part of that client's invoices. The refinance still works, but it is smaller, and the file should say plainly what happens to payroll if that client leaves. See customer concentration and debt.

Getting from the first refinance to cheaper money

The first refinance for a security company is rarely its last. Factoring ends the daily debits and funds growth, at a price above a bank's. After a record of clean months, a guard company can often move to a bank line; see moving from factoring to a line of credit. An alarm company with steady attrition can later refinance its term loan with a lender that gives the recurring revenue fuller credit.

SBA sits at the end of that path, not the start. SBA will not refinance an active merchant cash advance or a factoring agreement, and from 1 October 2026 an advance becomes eligible only once converted to a term loan that has amortized for at least 24 months with no new advance since. See getting a bank loan after advance history.

Transparent's package for these files, built in a day once the documents are in, leads with what the lender is underwriting: the contract book, the clients, the recurring revenue and the attrition. The advances appear exactly as they are, obligations with stated balances retired at close. See the package and how Transparent handles advance refinances.