How to Finance your Government Contract

Winning a Government Contract is a great way for start-ups, small and medium-size businesses to grow. If your business sells goods or performs a service, you might qualify for a government contract. The federal, state, and municipal levels of government are always in need of trustworthy, quality partners and are looking for start-ups, small and medium-sized businesses to fill those needs. If you have a business that can qualify as woman-, minority-, or veteran-owned, then there are even more opportunities available, as certain contracts are set-aside specifically for those groups.

What a lot of businesses don’t release is that being awarded a federal, state, or municipal contract can be the easiest part. The biggest obstacle they run into is fulfilling the government contract while having to wait to get paid via the government payment system.  Entrepreneurs can be put in the uncomfortable position of having to raise capital or sell equity in the business, just to survive.

Leonid understands this challenge, and it is the reason why we have crafted all our financial offers to be non-dilutive and with no long-term obligations. We don’t want you selling off a piece of your company or getting into a long-term contract to solve a short-term problem. Our offering is available to companies working across all government sectors and on any government project.

We have also gone through a nine-month application process and background checks with the Department of Defense to become the only Non-Dilutive Trusted Capital Provider for the Pentagon, giving our customers peace of mind on who they are partnering with. We are here to help solve the financial problems that arise from fulfilling key government contracts, especially those that relate to National Security and Defense.

Financial problems with Government Contracts

Start-ups, small and medium-size businesses owners don’t realize the possible financial difficulties that winning a Federal, State or Municipal contract can create. The primary obstacle is the disconnect between providing your good or service and getting paid by the government bureaucracy.  This disconnect can cause serious cash flow problems, as the government’s slow payments can result in a lack of funds to pay your employees and vendors on time.

Issue 1- Slow Payments for Services Rendered

Typically government sectors pay their invoices  on a net-30 day schedule, but it doesn’t take much for that to turn into Net-45, Net-60, or even Net-90. This is something few start-up, small and medium business owners take into account when they are bidding for government contracts. This working capital disconnect can lead to short-term financial problems for these businesses, as they need to pay the expenses that are required to fulfill the government contract well in advance of getting paid; these expenses can range from additional staff hires, paying suppliers or making payroll.

Issue 2- Pay your Vendors or Suppliers on time

Slow or delayed payments can waterfall into a delay paying your vendors, which may put the business at risk for meeting the federal, state or city contract performance deadline. Vendors and suppliers sometimes require prepayment for the goods and services delivered, and almost all of them will want to be paid faster than the government pays you. If a business can’t pay its vendors in a timely manner, then it runs the risk of not fulfilling its obligations on the government contract.

Government Contract Financing

There are four financial solutions that are ideal to finance government contracts. These options give government contractors the flexibility they need and are well-suited for fulfilling their government contracts.

Option #1- The Small Business Administration MicroLoan

Start-ups and, Small Businesses can get up to a $50,000 line of credit from the Small Business Administration.  Small Business Administration has several programs designed to help start-up, small and midsize companies startup or expand. These MicroLoans are easier to qualify than getting a loan from traditional banks. Do note, these loans are provided by traditional banks but are guaranteed by the US government.  As such, they require a lengthy application timeline and often require a pledge of a personal guarantee – meaning that you agree you will pay back the loan even if your business can’t

Option #2- Invoice financing

Most government contractors have one main obstacle – cash flow.  Cash flow impacts their ability to pay their staff, vendors, and other expenses. This challenge is due to the disconnect created by the slow invoice payment process that occurs in pretty much all sectors of the government. Leonid specializes in government contract invoice financing, also known as Invoice Factoring – we help government contractors solve their cash flow challenges by financing their government invoices.

What are the benefits of Invoice Factoring your government contracts? Your business receives funding in a matter of days, not months.  The pricing is upfront and transparent. There are no long-term commitments.  In most cases, it does not require a personal guarantee.  And finally, it is non-dilutive funds, meaning you keep control of your business on your terms.  This funding is available to startups, small, and medium businesses even if you don’t meet the traditional banking requirements.

Option #3- Accounts Receivable Financing

Government AR Financing, also known as Account Receivable Financing or Sales Ledger financing is a financial solution that gives a business the flexibility of a line of credit with no redundant controls that are built into many factoring programs that are usually offered by factoring companies. AR Financing is a great option to help businesses improve cash flow and keep full control of their business.

What are the benefits of Account Receivable Financing? Just like Invoice factoring, a business receives non-dilutive funds, gets funding fast and is available to startup, small and medium businesses even if you don’t meet the traditional banking requirements.

Leonid government accounts receivable financing or ledgered line of credit as it also is known as, helps start-up, small and medium size businesses solve their cash flow by getting them the cash they need to keep their doors open and expand.

Option #4- Asset-based Lending

Asset-based lending is a loan or credit line that is offered to a business that is secured by some form of business collateral. This collateral includes, but is not limited to, inventory, equipment, accounts receivable and other assets on the company balance sheet.  This sort of financing requires a robust asset base and a long business history to pass underwriting.  It’s great if you can get it, but more than 80% of applications are denied due to lack of collateral.

Conclusion

The type of financing a startup, small or medium size business qualifies for is dependent on the size of the company, business history, and the overall business financial situation. Companies that need funds to fulfill their government contract should consider Accounts Receivable or Invoice Factoring to improve their cash flow. These types of financing options offer quicker cash flow, less ongoing obligations and take the pressure off needing to chase invoices for prompt payment.

If you a government contractor that needs help improving your cash flow to fulfill your Federal, State and Municipal Government Contract, Contact Leonid today to learn about our flexible Government Accounts Receivable and Government Invoice Factoring options. Leonid offers Non-Dilutive, No Long-Term commitments, and transparent, best-in-market pricing. Contact us today to learn more.