One of the best ways to grow your small business is through bidding on government contracts. After all, government agencies at all levels purchase goods and services. If you sell it, chances are the government will buy it.
That being said, finding the contract is the easy part. Fulfillment and delivery are what are usually problematic for small businesses. Most often, problems arise because the business doesn’t have the funding needed to fulfill the contract. Below, we’ll show you six ways that you can fulfill a government contract.
6 Financing Solutions
As we mentioned, finances are usually the problem. However, we have six solutions that are easier to get than conventional financing. These options are flexible and well-suited for growing government contracts.
SBA (Small Business Administration)
The SBA has a variety of programs in place for small to mid-size companies. If you only need a small line of financing, you might want to consider a microloan. Which reaches up to $50,000 (limits vary from state to state). These are much easier to get than conventional bank loans and are great for businesses that are just getting started.
If your financing needs are larger, you might want to consider CAPLines. This is a type of 7(a) loan and can reach up to $5 million. There are several ways that CAPLines can be structured.
The primary issue with most government contracts is cash flow issues due to slow invoice payments. You can solve this issue by financing your invoices through an invoice factoring program specializing in government receivables. This gives you the funds you need to fulfill the contract while the factoring company waits for payment.
It’s easy to qualify for invoice factoring. These lines are available to small, growing businesses that are not able to meet the requirements of traditional financing solutions.
Sales Ledger Financing (Accounts Receivable LOC)
Sales Ledger Financing acts like a LOC secured by accounts receivable. It’s an option for companies that invoice at least $300,000 per month and have a good track record of paying their bills. It is an ideal option for businesses that have outgrown factoring but are not in a position to qualify for bank financing. The benefits associated with this solution are similar to those of factoring and can grow your sales as long as your accounts receivables are quality.
PO, or purchase order, financing is beneficial for wholesalers that have large purchase orders. This financing can only be used on purchase orders for a product. It cannot be used to fulfill service orders.
Purchase order financing programs allow you to pay supplier costs associated with government purchase orders. You can fulfill the order and book the revenue. It is a flexible line that is designed to adjust as orders grow.
This works best for orders with profit margins over 20%. It’s fairly easy to get set up, and only takes a couple of weeks.
Supplier financing is a form of financing designed to assist small to mid-sized manufacturing companies/distributors with government purchase orders that need to pay suppliers. It’s a type of supply chain financing in which the finance company extends credit to your company to cover the purchase of supplies.
This is ideal for businesses that have a good track record and have been in business for at least 3 years. A major advantage to this type of financing is that it works well with what you already have in place. When used properly, it can increase what you are capable of, allowing you to fulfill more orders/build inventory.
Larger companies that have been in business for some time might want to consider asset-based lending. This can be structured like a term loan or a line of credit, based on the asset that is being financed. This allows you to use your company’s assets (inventory, equipment, or accounts receivable) to obtain financing.
An asset-based loan is typically used by companies that are growing and have financial controls in place but are not able to qualify for conventional credit lines. You need at least $1,000,000 in monthly revenue to be considered for this type of financing.
The type of financing you choose to fulfill your government contracts will depend on several variables. Such as the size of your business, your financial picture, and the type of transaction. If you are interested in learning more about which solution is right for you, contact Crimson Stone Capital Solutions. We will be glad to walk you through the process.