Government Contractor Financing

You can use your assets (equipment, accounts receivables, commercial properties, etc.) to secure government contract financing. Asset-based loans use company assets to secure a revolving line of credit or a business term loan.

Service-based contractors that do not use equipment or inventory can use accounts receivables as collateral. For contractors that do have machinery and equipment, inventory, and receivables, an asset-based loan is a perfect solution. Below are some of the ways to use a government contractor asset-based loan.

• Purchase inventory
• Refinance equipment
• Hire new employees
• Accelerate payment on invoices
• Increase the operating cash flow
• New contract bidding

Government contract factoring is one of the most common forms of financing for government contractors. Federal and state government contracts commonly pay on net 30-day terms. This means that many contractors have cash tied up in receivables.
In addition to the receivables, there’s often a component of earned but unbilled invoices. Factoring for government contracts allows for invoices and earned but unbilled invoices to get paid as the work is completed, rather than waiting 30-60 days for payment.

Below are some of the ways that you can use factoring.

• Purchase inventory
• Payroll
• Accelerate payment on invoices
• Increase the operating cash flow
• New contract bidding
• Hire new employees

When work is in progress there are some expenses incurred that cannot be immediately billed. Among these are – inventory, materials, equipment, and labor. Factoring doesn’t always provide the liquidity and ongoing cash flow that’s needed.

So, when this is the case, we can look at earned but unbilled invoices to provide additional operating cash flow. By using earned but unbilled factoring, you can unlock cash flow that is trapped in both invoices as well as work in progress.
Below are some of the ways to use earned but unbilled factoring for government contracts.

• Increase the operating cash flow
• Hire new employees
• Purchase materials
• Unlock cash
• Increase the operating cash flow
• New contract bidding

The SBA 7(a) program is the most common SBA loan program for government contractors. SBA loans amortize anywhere from 10 years to 25 years, depending on what type of collateral is available. For example, the term for government loans using machinery and equipment, inventory, and accounts receivables as collateral is 10 years.

When a government contractor uses commercial real estate as collateral, the term can stretch out to 25 years. Below are some of the ways to use government contractor SBA loans.

• Refinance existing debt
• Business acquisitions
• Purchasing new equipment
• Increasing operating cash flow
• New contract bidding
• Purchase or refinance real estate

Revolving credit is not always available when opportunities arise, such as new contracts to bid on. When there is a quick capital need for contract writers, equipment, inventory, or general working capital the best option is bridge loans.

Bridge loan programs can be closed quickly with an easy application process. The biggest benefit of bridge loans is a limited distraction from day to day operations. Some of the ways to use bridge loan programs are the following.

• Hire contract writers
• Purchase materials
• Increase operating capital
• Bid on new projects
• Buy new equipment
• Payroll

The most flexible loan program for contractors by far is a business line of credit. Business owners who have ongoing capital needs as well as an operating line for standby capital is an essential in today’s business world.

Business line of credit programs are flexible, cost-effective, and provide the cash cushion that’s needed. Using a combination of an SBA loan program and a business line of credit will result in low monthly debt payments, and standby capital for when needs arise.

The following are a handful of ways you can use a business line of credit.

• Purchase inventory
• Hire new employees
• Bid on new contracts
• Purchase equipment
• Make payroll
• Refinance debt

Upfront capital is needed when a new government contract is awarded. In some cases, the government contract will have a mobilization funding component, but in actual practice, government contractors often turn to mobilization financing programs.

Mobilization funding can be a crucial part of being able to perform on a newly awarded contract. Rather than turning down new contracts, you can look towards a mobilization financing program that can get you started.

Here are some of the ways you can use mobilization funding.

• Upfront contract expenses
• Purchasing materials
• Buying essential equipment
• Hiring employees
• Making payroll
• Operating cash flow

Government financing programs can be structured as revolving credit lines or term loans. Lines of credit are typically used for operating cash flow needs, while term loans are used for one-time purchases.

These loans provide an immediate injection of cash that amortize over multiple years. Term loan programs can be structured as an equipment loan, a multi-year term loan, or an SBA loan program. There are many ways to use a government contractor term loan program. For instance,…

• New equipment
• Buy materials
• Purchase inventory
• Refinance equipment
• Operating cash injection
• Purchase real estate

Equipment is an essential and determines the performance on many government contracts. There are times when equipment is provided by the government, although at times it is granted, and on other occasions it is the responsibility of the government contractor.

Instead of paying with cash, many turn to equipment financing. These financing programs can be structured as a loan, or a lease and amortize over a period of one to five years. The more essential the machinery and equipment is, the more attractive the terms of the government equipment financing will be.

Below are some of the ways to use equipment financing.

• Purchase new equipment
• Refinance existing equipment