Top 5 Contract Financing Solutions

Government contractors often have a period when they are providing services to the government agency, but aren’t seeing payment. This can cause a cash flow situation that can be difficult to overcome if it is left too long. However, there are solutions when your organization has a contract financing issue.

 The Small Business Administration 

The SBA doesn’t offer loans, it just has resources and acts as a guarantor for small businesses. One newer product is a microloan, one that is $50,000 or less, to help a business get over the hump of waiting for a government contract to pay. The SBA also has loans with competitive terms for small businesses to help even the playing field with traditional lenders.

Purchase Order Financing 

Wholesalers may have the purchase order to send merchandise, but they may not have the working capital to fulfill the order. Your organization can use the purchase order as a contract financing, and quickly get the funds you need to pay suppliers and make things happen.

Invoice Financing 

Similar to PO financing, invoice financing uses completed invoices that are owed by your clients. You may be gracious and allow 30 or 60 days for payment, but really need the income quickly. Factoring is a great choice in this instance, and when the invoice is paid, it pays the loan and you get the remainder.

Asset Based Lending 

If your business has equipment or inventory that can be pledged as collateral, this can be a good option for you. Newer businesses that have a lot of monthly revenue, but can’t get a conventional line of credit, often use this type of financing to keep going through times of problematic cash flow.

Contract Financing 

Another type of financing that is open to government contractors is contract financing. Similar to PO financing and accounts receivable financing, you use the contract as the collateral for the loan. This type of financing works best when you have to invest in equipment to meet the needs of the contract, but the contract won’t be paid for 30 or 60 days. There should be about a 20 percent profit margin on the contract. The government is generally reliable, but your company should also have a track record of meeting its contractual obligations.

When your organization does business with a government agency, you have financing options that let your business fulfill the contract, even though you need working capital to make it happen. Find out your options by talking to lenders who know the market and can make it happen.

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