The most valuable thing a people business owns goes home at six o'clock and is free to resign tomorrow. That single fact reshapes how a payroll-heavy services firm gets funded. There is no plant to charge, no stock to revolve, no freehold to mortgage. The balance sheet is thin by design, and the asset that generates almost all the revenue — skilled staff under no obligation to stay — is precisely the asset no lender can take security over. So the question for an asset-light services firm is not "what can I pledge" but "what contracted income can I prove, and who will lend against it."
Why the usual security doesn't exist here
A lender securing a loan to a typical SME takes a debenture: a fixed charge over assets the business does not trade day to day, and a floating charge over the ones it does. For a manufacturer that fixed charge bites on machinery and premises; the floating charge sweeps stock and work in progress. Run the same exercise over a consultancy or managed-service provider and the fixed charge finds office fit-out and some IT, the floating charge finds trade debtors and cash, and that is roughly the end of it. The enterprise value lives in client relationships and staff, neither of which a debenture can attach to. Goodwill is not collateral a lender can realise in an insolvency, because the moment the firm fails the staff leave and the goodwill leaves with them.
This is why lenders to people businesses lean so heavily on personal guarantees. A director's personal guarantee is not a belt-and-braces extra on these files — it is frequently the substantive security, because the company-level charge is worth little in a downside. Founders are sometimes surprised that a profitable, fast-growing firm is still asked to guarantee personally. The reason is structural, not a judgement on the business: there is no asset behind the loan, so the lender takes the guarantee as the thing it can actually enforce.
What gets underwritten instead: the contract book
With assets off the table, the underwrite shifts to the durability of income. A lender funding a people business is really asking how confident it can be that next year's revenue resembles this year's. Three things drive that read, and they are specific enough that two firms with identical EBITDA can borrow very differently:
- Contract length and notice periods. Multi-year master service agreements and retained mandates with renewal commitments support more debt than a pipeline of rolling 30-day arrangements. A lender will read the actual termination clauses, not the headline "long-standing client."
- Client concentration. A book where the top three clients are 60% of revenue is priced and sized very differently from one where they are 20%. Concentration in a people business is doubly dangerous, because losing the anchor client usually means losing the team that served it too.
- Churn and net revenue retention. Recurring-revenue and subscription-style firms are sized off a multiple of their recurring income, and the multiple turns on retention. Low churn and net revenue retention above 100% — existing clients spending more each year — signal income that compounds rather than leaks, and lenders will lend further against it.
Get these three right on paper and the firm becomes fundable despite owning nothing a charge can grip.
The products that fit a contract-backed firm
Because the security is income rather than assets, the structures that work are the ones underwritten on cash generation and contracted revenue:
- Cashflow lending against future revenue. A cashflow loan is the workhorse here — a term facility sized on affordability and trading history, used for hires ahead of billing, fit-out, or bridging an acquisition. Recurring-revenue firms can borrow against a multiple of their contracted income; project firms borrow against backlog and the seniority of the people behind it. For eligible firms, the government-backed Growth Guarantee Scheme can sit behind such lending — it gives the lender a 70% guarantee on facilities up to £2m for businesses with turnover up to £45m, while the borrower remains 100% liable for repayment, and the scheme is currently confirmed to run to March 2030. The guarantee makes a lender more comfortable with a thin asset base; it does not remove the personal guarantee.
- Asset-based lending where there is a debtor book. Where the firm bills cleanly across many clients, asset-based lending wraps the receivables — and any plant or IT — into one revolving facility that grows with the ledger. It only reaches as far as the debtors do, so it complements rather than replaces a cashflow loan for the genuinely asset-light.
- Equity when the constraint is the balance sheet itself. When a firm needs to scale headcount faster than debt service allows, or fund a buy-out, equity brings capital that does not demand monthly repayment or a personal guarantee — at the cost of ownership. For founders unwilling to guarantee ever-larger debt against their home, this is sometimes the more honest structure.
Borrow against what you can prove
The firms that fund themselves well do not pretend to have assets. They build the case the lender will actually underwrite: a contract schedule with real end dates and notice terms, a concentration breakdown that owns the anchor-client risk rather than hiding it, and an honest churn or retention history over the last two years. A people business that walks in with that file, and a clear-eyed view of the personal guarantee it will be asked to give, raises money far more easily than one that leads with a turnover figure and hopes nobody asks what stands behind the loan. For how this fits the broader funding picture across the sector, including working-capital options, see the business-services sector page.