Types of Contract Financing Explained
One of the best ways for a small business to grow and get on the same level as bigger companies are to accept government contracts and then fulfill the terms of those contracts on time, and within budget. Such contracts are very common because all kinds of government agencies need products and services offered by small businesses. The trick, of course, is that you have to come through on those contracts after accepting them, and many small businesses simply don’t have the financial wherewithal to deliver on contract stipulations they’ve agreed to. Here is how you can obtain the necessary funding to deliver on those contracts and help your company’s business grow.
Contract Financing Options
Here are some of today’s most popular options for financing government contract work:
- Small Business Administration – The SBA offers several different programs that can help small businesses, especially in the area of microloans which provide up to $50,000 in funding. For businesses requiring considerably more funding than that, as much as $5 million can be borrowed under the CAPLines program, which is a variant of the 7(a) loan program.
- Invoice financing – Many small-business are faced with cash flow problems because of slow-paying customers. One way this can be overcome is by using invoice factoring, which provides immediate funding to a business while a third party collects the amounts due from the invoices.
- A/R line of credit – A line of credit secured by accounts receivable is a very realistic option for any company that invoices at least $300,000 per month. Typically, this option is available to companies that no longer use factoring, but do not wish to participate with bank financing.
- Purchase order financing – This option is for product wholesalers who have large purchase orders, and it can help you to cover costs associated with any government contract you might have to fulfill. This funding will allow you to complete the order and then receive the revenue.
- Asset-based lending – Usually larger companies make use of asset-based lending since they can be made to imitate term loans or lines of credit. This type of credit line will allow you to finance all your main assets, such as equipment, inventory, or accounts receivable. Asset-based lending is often used by companies that don’t qualify for a traditional line of credit, but still generate at least $1 million in monthly revenues.
If you have a contract with some governmental agency to provide a service, but you lack the funding to proceed with the work, we may be able to assist you financially. Contact us at Charis Commercial Capital to discuss some possibilities that might be available to you to secure the financing you need to fulfill the terms of the contract.