What is Government Contract Financing?
Government contract financing should be the very first item on your to-do list if you are considering bidding for a government contract.
The Benefits of a Government Contract
According to a Small Business Administration report released late last year, “the federal government not only exceeded its small business contracting goal, it awarded a historic $132.9 billion or 26.50 percent in prime contract dollars to small businesses.”
Furthermore, government agencies at state, county, and city level also have directives to work with small businesses. This provides a superb chance for small to mid-sized companies to grow.
Financing Your Government Contract
But winning the contract is the easy part. However, paying for the upfront expenses and operating costs to fulfill the contract can be crippling. On top of that, you will have to wait a month or two for the government to pay the invoice. Suddenly, the lucrative opportunity has put your business in jeopardy.
Getting a bank loan is one solution. But bank loans add to your company’s debt and often take months to process. Not to mention, they come with financial covenants that can stifle your management goals and objectives.
This is where government contract financing comes to the rescue!
Whether you need to hire more staff, buy or lease extra equipment, or make minimal margins work, you can solve your cash flow problems with a form of government contract financing.
Fast and flexible funding assures you of a reliable cash flow. This, in turn, lets you take advantage of growth opportunities as they arise and early payment discounts from suppliers.
Government Contract Financing Options
Depending on your business’s standing, you can choose from these financing solutions:
- Factoring (aka A/R accounts receivable factoring or invoice financing) is a quick and easy way to get a cash advance against your outstanding invoices. It is ideal for businesses with a short to no credit history as it counts on the creditworthiness of the client (the government), rather than yours.
- Asset-based lending suits larger businesses that have at least $1 million of liquid assets such as A/R, inventory, or equipment.