A great way for a small business to grow is by dealing with government contracts. Government entities at the city, county, state, and federal levels buy every kind of goods and services. There a good chance that the government will buy the services and products you sell. Government agencies have a mandatory compulsion to work with small businesses. This creates a good opportunity for businesses that know how to deal with this area.
The easy part is to find a government contract. The difficult part is the delivery and completion of the contract where small companies usually experience troubles. These issues arise because only a few companies have the necessary funding that fulfills their government contracts. This puts the companies in a position to not succeed.
Small companies simply run away from government contracts because even by small business standards, small government contracts can be huge. There are two major issues. Firstly, due to slow payments, it affects your cash flow. Government agencies usually pay their invoices between 30-60 days. This delay in payment can have major financial consequences.
Your company will have to pay for the expenses to fulfill the government contract. The company shall be able to wait for weeks for payment. This gets tough if your company does not have a cash reserve or hires extra staff. Another problem is that your company might not be able to pay the vendors.
It is important to get contract financing before you submit your bid. Receiving funding can take time. Having proper funding before bidding helps you avoid delivery problems. In short, you don’t want to be in a situation where you have the bid but do not have sufficient money to execute it. One advantage of getting funding before is that it makes the financing of the project much easier.
FINANCING GOVERNMENT CONTRACTS
There are many solutions for government contracting to finance and how to get funds for government orders. Many solutions are flexible and suit well for government contractors.
SBA AND MICROLOANS
The small business administration (SBA) loan offers solutions that you can use to finance government projects. The small business administration provides a variety of products that can help midsize and small companies. Microloans should be considered by companies that require a small line of funding. These lines vary by state and can reach a maximum of $50,000.
They are ideal for business owners who are just starting out and are easier to receive than traditional bank loans. CAPlines should be considered by larger businesses. These are a unique kind and type of 7(a) loan. CAPlines can be structured in many ways, and range up to 5 million dollars. SBA gives guarantees to banks that are providing the loans and does not lend cash directly.
Another great solution for contract financing is invoice factoring or accounts receivable factoring. Account receivable factoring deals with the elimination of cash flow problems due to slow payments. The invoice factoring that specially deals with government receivables provide you with the cash for expenses and let you finance invoices. One major advantage of factoring is that it is extremely flexible.
When the revenues from your government contracts increase, the line grows too. It is very simple and easy to qualify for a factoring program. Funding for government contractors is much easier too. Factoring is the best option for government contractors because it takes a week or two to set up.
PURCHASE ORDER FINANCING
Purchase order financing is another solution to get funds for government contracts. PO financing and funding help wholesalers deal with large orders and need money to pay suppliers. It allows you to cover the costs of the supplier that is associated with a specific government purchase order. This financing helps you fulfill the order.
PO financing has one company paying the distributor and supplier of another company, for stocks and commodities that have been ordered to complete a job for a client. It is basically an advance. This financing may not be for the complete amount and bill of the supplies, but it covers a good portion of it. But there are some cases where businesses could be eligible for 100% financing.
Purchase order financing for startups and small businesses that are new is a great way to boost your business. It is also very flexible.
Supplier financing is another great solution. It helps midsize and small product distributors and manufacturing companies that have government purchase orders and need to pay their suppliers. It is a kind of supply chain funding in which the finance company gives credit to your company and transition your supply purchases.
This good works with companies and businesses that have an established track record and have at least three years of work experience. One great benefit of supplier financing is that it works great with your present financing. If you use it correctly, it can expand your capacities and let you fulfill large orders and build inventory.
One great solution and an alternative to government contract financing are that more established companies and businesses that require funding should consider asset-based lending. This line lets you fund and finance your company’s main assets like the inventory, accounts receivable and equipment.
Based on the asset that is financed, asset-based lending can be organized to be like the lines of term loans or credit. Growing companies use asset-based loans with strong financial controls but cannot qualify for a traditional line of credit. This idea is accessible to companies that generate a minimum of $1,000,000 of the revenues every month.
Many small business owners and operatives find it profitable to sell products and goods to the US government. Companies that have contracts and agreements with the government often lack the cash to deliver their products. Product agreements have great values that transcend the financial capacities of government vendors.
These small businesses and companies go through the dilemma of how to get orders and be able to complete them. There are many advantages to government purchase order financing. They are easy to qualify for and are accessible than a regular loan. They are also easy to set up and is a flexible funding option.