May 18, 2022
For government contractors and small businesses that are subcontracted by other companies to complete the government contracts, one of the most problematic things is to get government payments on time. If you are also struggling to finance the government contracts you have undertaken, you must know what to look for and where to look for.
Applying for government contractor loans is the fastest and most efficient way to get cash in hand and progress the project at full speed. However, there are certain things that every small business must know about government contracting.
Let’s talk about the good things first about government contracting. Whether it is a federal, local, or state government project, landing one under your pursuit can give a great boost to the reputation of your small business. Government contracts are extremely hard to get. However, once you get one government project, your chances of getting other government and private contracts also increase substantially. Interestingly, delivering government projects on time serves as a ladder to success and fosters business growth.
While many companies try to get government contracts directly, many businesses get in the door by subcontracting a government project. Many large corporations that get the tender of government contracts collaborate with small companies to fulfill the contract within the timeline economically. In fact, many of these organization shave quotas or incentives that require them to use small businesses, women-owned businesses, minority-owned businesses, etc.
However, the downside of handling government contracts is that government clients can be very slow to make payments. You might have to wait for not just one month but two or three months for an invoice to be paid as it often goes through several layers of red tape and bureaucracy. Even a single mistake on your invoice can mean that you have to re-submit your invoice after correction and the entire process is repeated. The same applies to subcontractors as large corporations often have many policies and red tape when it comes to contract payments.
So, if you ever find yourself out of cash and are required to continue the project or start another project in the meantime, government contractor loans can help you stay out of the worries and humongous stress.
Here are the four most effective financing options to carry forward your government contract or subcontract. If you are finding it hard which of these government contractor loans is best for your small business, prefer consulting with a finance expert before you apply for the loan. These loans are far easier to get than traditional bank loans and are highly suitable for growing small businesses and government contractors.
The Small Business Administration (SBA) runs several programs to financially assist medium and small-sized companies. For those who need to loan a very small amount for financing, a microloan is a better option. The lines of credit for microloans can reach a maximum of $50,000 but limits change state by state. These loans are ideal for entrepreneurs who are trying to establish their roots in this competitive world of getting government contracts. Larger businesses can apply for CAP Lines - a special type of 7(a) loan that can go up to $5 million and can be structured in different ways.
Invoice financing is the best solution for government contractors and subcontractors that face cash flow problems due to delays in invoice payments by government agencies and contractors. It is a government contractor loan approach in which the lender gives money to government contractors and subcontractors in advance on their outstanding invoices. It’s also a safe way to loan money because you know the client will pay you eventually.
As you browse invoice financing options, you will notice terms like recourse, full-recourse, and non-recourse. In a recourse or full recourse, the lending firm that is financing your invoices doesn’t accept certain risks associated with the accounts. It becomes important in case the invoices don’t get paid in a timely manner. If that happens, the financing company can charge the invoices back to the contractor.
On the other hand, in anon-recourse factoring agreement, the company accepts that it is willing to take certain risks associated with the invoices and doesn’t charge back the invoices to the contractor
The asset-based lending option allows you to secure a government contractor loan by offering your assets, including account receivables, inventory, machinery, and equipment as collateral to fulfill your current financial requirements. The terms and conditions depend on the type and value of the assets that you are offering as collateral. This is often a common option used by small and mid-sized companies to cover short-term cash flow demands.
While, usually, SMEs that are stable and have valuable physical assets most commonly choose to become asset-based borrowers, large companies sometime seek asset-based loans to cover short-term needs as well.
Another option is supplier financing which allows small and medium-sized manufacturing companies and distributors with government purchase orders to secure funds to pay suppliers. In this method of financing, the finance company offers financial assistance to your company and intermediates your purchases made through a supplier. This solution is ideal for companies with a strong track record and that have at least three years of history in business operation. When used the right way, it allows you to build inventory and fulfill large orders fast.
Royale Capital is a renowned company based in the USA that has years of experience in facilitating government contractor loans. If you need financial help to grow your business and fulfill government contracts and orders, you can always contact us.
We understand that you can’t wait for months for government agencies to pay invoices. Hence, we provide a quick and better solution that helps your business keep moving forward and allow you to deliver your projects on time and with quality.
We are experts in fast financing and know the challenges you face while handling and completing government contracts. So, don’t hesitate to contact us for government contractor loans.