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Top 4 Government Contract Financing Options for Small Businesses

Martin Castilla            No comments            Oct, 7

Every year, the US federal government awards billions worth of contracts to private companies in the country. Acquiring government contracts is a great opportunity for small business owners to generate more revenue and expand business operations. But fulfilling these contracts can be a huge responsibility and if it isn’t managed properly, it can cripple your finances. Government contract financing is a great option for companies that are looking to fund operational costs incurred in fulfilling government contracts.

Government contract financing can help small businesses that are struggling to complete assigned jobs, especially if you’re funding other projects along with the government contract. Working capital problems can happen and you may not have enough money to cover business expenses. One way to ensure that you have all the cash you need is to apply for any of the following government contract financing options:

1.    Purchase Order Financing

Small business owners often work with suppliers that require payment before they give out the supplies. However, this can be a problem if you don’t have enough working capital to cover the payment. If this is the case, you might want to consider purchase order financing.

Purchase order financing provides business owners with the working capital needed to pay suppliers upfront for purchase orders. In this way, you’ll be able to acquire the goods to fulfill the order. The PO company will pay your suppliers so they can manufacture and deliver the products to your customers. The transaction is completed once the government receives the products and pays for their order to the PO company. The purchase order company deducts their fees before giving you the remaining balance.

Keep in mind that you can only apply for purchase order financing if your business resells finished products. This means that companies that manufacture their own products cannot qualify for PO financing.

2.    SBA Microloans and 7(a) Loans

The Small Business Administration created a number of financing programs called SBA loans to help small business owners qualify for bank-rate financing. A microloan is perfect for business owners that need $50,000 or less. It’s usually best for startups that are looking to fund business growth. However, only a small percentage of government contractors benefit from microloans. Instead, they combine microloans with another method of financing to help fulfill government contracts. For larger business needs, you may want to apply for SBA 7(a) loans. They have a higher loan limit ($5 million) compared to microloans.

3.    Invoice Factoring

Invoice factoring is a simple and convenient way to solve cash flow issues caused by pending invoices. Instead of waiting for 30, 60, or 90 days, invoice financing enables you to sell those invoices in exchange for immediate funding. The government will pay their dues to the factoring company, and then the factoring company will give you the payment, minus a small transaction fee.

The assignment of claims act allows business owners to finance government invoices because even though the government is an excellent client, they can be slow payers. It’s easy to qualify for invoice factoring and it’s especially easier if you’re a government contractor.

4.    Asset-Based Loans

Asset-based lending allows business owners to leverage company assets like accounts receivable, commercial real estate, equipment and machinery, inventory, and even intellectual property in order to secure funding. It’s a great option if you can’t qualify for traditional loans.

The terms of your asset-based loan depend heavily on your collateral (the asset being financed). An asset-based loan can be structured in two ways: like a line of credit or like term loans. If your assets are accounts receivables and inventory, the loan can be structured like a line of credit. On the other hand, machinery, real estate, and other assets function like a term loan.

Apply for Government Contract Financing Today!

It’s important to ensure that you’ll have enough working capital to keep your business afloat while fulfilling business obligations. Don’t wait until your business runs out of working capital! SMB Compass offers government contract financing for government contractors in the United States. Aside from the ones mentioned above, we also offer the following:

  • Equipment Financing
  • Term Loans
  • Mobilization Funding
  • Line of Credit
  • Bridge Loans

If you’re not sure which loan product works best for your company, our financial advisors are ready to help. Simply call us today at (888) 893-8922 or email us at for more information.