Security company finance for guarding and patrol businesses

Yes, though lenders fund the first contracts more readily than the idea. A new guarding or key holding company can borrow modestly from day one through a personal Start Up Loan or a small unsecured loan backed by the directors, and asset finance can cover a patrol vehicle, radios and body worn cameras. The bigger money arrives once the first contract is signed, because invoice finance advances against each monthly invoice and lets the company pay officers weekly while the client pays on 30 to 60 day terms. Lenders look at the signed contract or letter of intent, the directors' experience in the industry, the SIA licences held by the directors and officers, insurance cover and a cash flow forecast that shows payroll being met. We look for lenders that work with new security businesses and line the facility up so it is ready before the first shift starts.

Do I need an SIA licence to run a security company?

Yes, if the company supplies licensable security staff under contract. The Private Security Industry Act 2001 makes it an offence to supply unlicensed operatives, and directors of a company whose directors, partners or employees carry out licensable work must hold an SIA licence themselves. A director who will not work on the front line applies for a non front line licence, and one that already holds a front line licence for guarding or door supervision does not need a second. The rule reaches shadow directors and the directors of a parent company whose subsidiary deploys licensed staff. SIA licensing applies across the UK, and every officer the company deploys must hold the right licence for the activity on the contract.

• Contract first. Lenders size invoice finance on the value of signed contracts, so winning the first site matters more than the business plan.
• Director checks. Lenders and the SIA both look at the directors' history, so an unsettled county court judgment or a past insolvency should be explained at the start.
• Insurance. Public liability, employers' liability and professional indemnity cover is usually asked for before any facility goes live.
• Payroll timing. Weekly wages against monthly invoices are the main reason a new security company needs funding at all.

The SIA explains licensing requirements for directors. Our start up business loans page covers new companies, invoice factoring explains funding payroll against contract invoices, and asset finance covers vehicles and equipment. Instant Quotes shows which panel lenders would look at a new security company, using a soft search that leaves your credit file untouched.

Guarding is a labour business with thin margins. Wages and the costs that follow them make up most of the price a client pays, so small timing differences create large cash demands.

• Payroll before payment. Officers are paid weekly or fortnightly. Clients pay monthly invoices on 30, 45 or 60-day terms, and large facilities management contractors may pay later still.
• Mobilising a contract. Winning a new site means screening and vetting officers, uniforms, radios, body-worn cameras, site-specific training and sometimes a supervisor's vehicle, all before the first invoice.
• Staff transfers. When a contract changes hands, officers often transfer to the new provider under TUPE, bringing accrued holiday and existing pay rates with them.
• April cost rises. Increases in the National Living Wage and employer National Insurance hit immediately. Contracts without a price review clause leave the provider absorbing the difference.
• Event peaks. Festivals, sport and summer events need large casual teams for short periods, with payment from organisers after the event.

Illustration. A hypothetical firm wins a two-year contract to guard a distribution site, needing twelve officers. Before the first invoice it spends around £15,000 on vetting, uniforms, radios and site training, and pays two fortnightly payrolls of roughly £25,000 each. The client is invoiced monthly and pays on 45-day terms, so the first payment arrives about two and a half months after the start. A small working capital loan covers the £15,000 set-up cost over the contract term. An invoice finance facility then advances most of each monthly invoice as it is raised, so later payrolls are funded from the contract's own billing. Before signing, the firm checks that the hourly rate still leaves a margin after holiday pay, sickness cover and the April wage rise.

• Winning the wrong contract. A large contract priced too low can consume cash faster than any facility can supply it. Model the margin after holiday pay, sickness cover and supervision before bidding.
• Invoice finance commitments. Check minimum terms, notice periods and fees for leaving, and whether the facility covers every client or only some.
• Bad debts. Hospitality and event clients fail more often; ask whether credit protection is available or needed.
• Personal guarantees are usual, including warranties on invoice finance.
• Alternatives. Negotiating a mobilisation payment, shorter payment terms or a price review clause with the client can do more than borrowing. For tax, compare a loan with HMRC Time to Pay; see Time to Pay versus a tax loan.