Getting financing for government contracts can be a considerable challenge. Government agencies set their own rules, and it can take years to get a contract approved.
But if you’re working on a government contract or bidding for a contract soon, you need to understand all the financing options open to you.
In this post, we outline some of the options for getting financing for your government contract purchase. Keep reading to find one that will work for you.
Invoice Factoring
Government contractors can often face a challenge when it comes to invoicing payments. Slow payment from the government can cause a cash flow issue for the contractor.
Factoring government contracts can be a solution to this problem. With factoring, the contractor sells its invoices at a discount to a factoring company in exchange for immediate cash.
The factoring company then collects the invoice from the government. A cash advance can provide the contractor with much-needed cash flow and help them avoid any potential disruptions in their business.
Purchase Order Financing
A few different types of government contract financing are available to product wholesalers. Purchase order financing is one option that can help cover the cost of suppliers for large purchase orders.
This financing allows businesses to borrow against the expected money they will receive from their customer’s purchase orders.
By securing this financing, businesses can avoid paying for their supplies up front and instead use the loan to finance these costs.
Asset-based Lending
Sometimes it can be complicated to secure a loan from a traditional lender when financing a government contract. The requirements for a conventional line of credit will often be challenging to meet, and these restrictions can prevent businesses from accessing the funds they need.
Asset-based lending is an alternative option for businesses looking for funds to finance their government contracts.
With asset-based lending, the lender bases their loan on the value of the assets owned by the company, including current contracts, equipment, and inventory.
Based on the value of your assets, the lender will lend you an amount you can pay back in small installments over time.
SBA Lender Programs
Small Business Administration lender programs provide an opportunity to secure funds for government contracts without the need to pledge personal assets as collateral for these loans.
SBA loans can be an attractive option for small businesses that want to finance government contracts without risking their private property.
Because the federal government backs these loans, the SBA requires borrowers to make monthly payments much smaller than those needed for a typical lender.
Such a system can help businesses better manage restricted cash flow caused by slow payments from government agencies.
Account Receivable Line of Credit
An accounts receivable line of credit can help contractors manage their cash flow and cover the cost of materials and labor without waiting for the government to pay their invoice. With this alternative financing option, businesses use their accounts receivable as collateral for the lender.
When they receive payment for an invoice from the customer, they withdraw the amount needed from the line of credit for business operations.
Then, when the customer pays their invoice, they receive the additional funds they need to pay off the line-of-credit loan and pay their bills.
Summary
Getting government contract financing for your government contract doesn’t have to be complicated.
With invoice factoring and purchase order financing, contractors can secure the cash they need to cover their costs while waiting for payments from the government to come through.
Other financing options are also available, including loans backed by the Small Business Administration and lines of credit based on accounts receivable.
Consider one or more of these financing options when bidding on government contracts or when you need cash to cover your costs while waiting for payments from the government to come in.
