What is Government Contract Financing?

As a small business owner, it is useful to have a number of resources at your disposal. Learn more about government contract financing below....
What is Government Contract Financing?
Written by Brian Wallace

As a small business owner, you want to grow. You want to expand your business to hire more employees, help more people, and make more money.

But you can’t just go into debt to expand your business, right? What if there is a way to grow your business without incurring debt?

Well, there is. It’s called government contract financing, one of the most popular ways to grow your business without going into debt.

In this post, we explain government contract financing, the types, how it can help you grow your business, the benefits, and how it works.

What is Government Contract Financing?

Government contract financing, also known as government contract factoring or invoice financing, is money provided to small businesses by financing companies (factors). These funds allow them to purchase needed goods and services from vendors, contractors, or manufacturers to fulfill government contracts. 

Small business owners have several options for financing government contracts. These include:  

  • Invoice factoring
  • Bridge loans
  • Asset-based loans
  • Business term loans
  • SBA loans
  • Equipment financing
  • Mobilization funding

Invoice financing companies know that the government is a reliable debtor, so they are willing to provide small businesses with funds to buy needed goods and services to meet government contracts. 

You might be eligible for government contract financing if you operate a socially-responsible small business with a solid track record of delivering value to government agencies.

Benefits of Government Contract Financing

The benefits of government contract financing include:   

Sufficient Cash Flow 

Many small businesses struggle to stay afloat because of a shortage of cash. With government contract financing, you get the money you need upfront to pay for vendors, contractors, or manufacturers to meet government contracts.   

Business Growth / Expansion 

You can grow your business to meet and fulfill government contracts with government contract financing. Purchasing needed goods and services for your business will allow you to meet government contracts faster.  

Debt-Free Finances  

Unlike traditional loans, government contract financing does not require you to go into debt to expand your business. You access the cash you need when you need it without incurring debt.  

How Does Government Contract Financing Work? 

Once you’ve qualified for invoice financing, you sell your unpaid invoices to a finance company at a discount in exchange for immediate cash. 

The factor pays up to 90 percent of the invoice amount. Now, you can use that cash to purchase needed goods and services from vendors, contractors, or manufacturers to fulfill government contracts

The government pays the factor when the invoice is due – for instance, in 30 or 60 days.

The factor distributes the balance of the invoice to the contractor after deducting a fee (generally 1-2%)

When Is the Best Time to Apply for Government Contract Financing? 

There is a common misconception that you should only apply for government contract financing after winning the bid. 

We recommend that you apply before the contract is awarded. You can finance your business easier with positive relationships with financial companies.

Final Thoughts

Giving small businesses government contracts is necessary to keep the economy afloat. It allows them to provide more jobs and opportunities to their local communities. 

Governments need reliable suppliers to provide goods and services to meet government contracts. You can be one of those dependable suppliers.  But how can you make that happen? Apply for government contract financing to expand your business and fulfill government contracts.

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