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Top 5 Government Contract Financing Options for You

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18 July 2019. Looking for new ways to grow your small business? Bidding for government contracts is one of the many viable ways to grow your business. But finding a government contract is easier compared to the actual fulfillment and delivery of the contract. Small business owners often encounter problems due to lack of funding needed to fulfill government contracts, causing them to fail. Government contract financing can help.

By applying for this type of loan, small businesses can access the funds needed to fulfill government contracts. With that said, here are the top five financing options for you:

1.   Purchase Order (PO) Financing

Purchase order financing provides companies with the funds needed to pay suppliers for larger purchase orders. This type of financing program allows you to pay for supplier costs for government purchase orders. With the working capital you receive, you’ll be able to meet orders and increase revenue. Purchase order financing is flexible and it’s created to cater to adapt to growing orders. The purchase orders serve as collateral for the PO loan. You can borrow up to 100% of the money you need to fulfill customer orders.

2.   Asset-Based Loans

If you have company assets you can leverage, you might want to consider applying for an asset-based loan. Your company’s assets will serve as collateral in exchange for working capital. Depending on your preference, an asset-based loan can be structured like a line of credit or a term loan.

Asset-based loans are best used by growing companies have the financial capacity but cannot qualify for a business line of credit. Here’s a list of collateral lenders usually accept:

  • Accounts Receivable
  • Inventory
  • Purchase Orders
  • Machinery and Equipment
  • Commercial Real Estate
  • Marketable Securities
  • Intellectual Property

3.   Inventory Financing

You can use the unsold inventory to your advantage by applying for inventory financing. This financing solution works similar to a secured business line of credit where the inventory serves as collateral. You can easily repay the loan once inventory sells and generates revenue.

However, inventory financing has its limitations. You should only use it for inventory and setting up your line can take time and money. All of your inventory has to be evaluated and often priced at a percentage of its ‘distressed sale value’. Additionally, maintaining your line can be tedious because of inventory control.

4.   SBA Loans

The Small Business Administration created a number of financing programs specifically to help small business owners secure long-term funding. For government contracts, an SBA microloan program provides companies with up to $50,000 worth of funding. This loan is specifically designed to provide funding to small businesses.

Another type of SBA loan to consider is the 7(a) loan. The SBA 7(a) loan has higher borrowing limits than microloans, but it’s harder to qualify for one. But with its long repayment terms and competitive interest rates, 7(a) loans are great for rapidly growing businesses that need flexible funding.

5.   Invoice Financing

Slow-paying customers can cause cash flow problems. But with invoice financing, you won’t have to deal with late-paying customers. This financing option allows you to finance your pending invoices in exchange for immediate cash. The money you receive from invoice financing increases as your business grows. Qualifying for invoice financing is fast and easy, making it an ideal funding option for you.

Apply for Government Contract Financing Today!

With government contract financing, you’ll be able to meet supplier and creditor demands, finance new and current contracts, expand contract opportunities, and more. SMB Compass offers different types of loans suitable for every business need. To speak with one of our lending experts, please call us at (888) 853-8922 or email us at info@smbcompass.com.

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