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How to Finance Government Contracts

By 08.05.20January 27th, 2021No Comments
How to Finance Government Contracts

Carol Apicella, Senior Vice President, Business Development Officer at eCapital Commercial Finance, has been helping government contractors successfully finance their business operations for over 20 years. In this interview, Carol shares her government contract financing insights as well as useful resources for government contractors.

Congratulations! You’ve been awarded a government contract. Now what? Whether you’re a seasoned pro or brand new to the world of government contracting, you probably understand there are tons of intricacies involved in dealing with the government. From hiring more staff and purchasing or leasing additional equipment to managing costs with minimal margins, financing government contracts can be a challenge for any business. eCapital Commercial Finance’s Carol Apicella  partners with government contractors to help them successfully overcome the financial challenges that often stem from securing a government contract.

Q: What options are available to finance government contracts?

Carol Apicella: There are basically five options for government contract financing. The first being a loan, for example, offered by banks which may include a guaranty by the Small Business Association (SBA). The second option is invoice financing or accounts receivable (AR) factoring. A/R factoring is flexible and widely accepted by government contractors. In fact, the government created the Federal Assignment of Claims Act (FACA) specifically to help facilitate financing through accounts receivable. The third option is asset-based lending. Asset-based facilities allow businesses to finance their assets, such as invoices, inventory and equipment, as a line of credit. The fourth and fifth options, purchase order financing and supplier financing, are designed for wholesalers and manufacturers. Purchase order (“PO”) financing helps wholesalers cover the supplier costs of a specific government purchase order. Supplier financing is a form of supply chain financing in which the finance company provides credit to your company and acts as a go-between for your supplier purchases.

Q: What are the benefits and drawbacks of these financial solutions for government contractors?

CA: Loans are a good place to start if your business can qualify and wait through the application process before having access to the funds. The downside for government contractors is loans can take months to process – time that most government contractors don’t have. Loans also involve financial covenants and add to company debt.

Invoice financing, on the other hand does not create a debt, nor have financial covenants, and has a much faster application process with minimal to no credit history required as the focus is on the contract and its fulfillment.  Invoice processing is typically managed electronically through various portals (WAWF, Tungsten, etc.) which affords ease and timeliness of verification with the government agencies, all of which are less invasive into the contractor’s day to day business. The factor generally releases funds to the contractor within 24 hours and then works directly with the government agency to collect payment.

For government contractors that don’t qualify for a conventional bank line of credit, asset-based lending provides a flexible solution with minimal financial covenants. Asset-based lending solutions are generally available as lines of credit leveraging A/R, inventory or other assets where applicable.  Generally viewed for larger, more established businesses, the typical line amounts start at $1 million.

Purchase order financing works best for businesses with higher profit margins, as a portion of the PO amount will be used to cover financing fees. To obtain supplier financing, businesses will typically need to show an established track record with at least three years of operational history.

Q: Can you talk through an example of how one of these financial solutions helped a government contractor?

CA: Definitely. I recently worked with a government contractor in Virginia who was awarded a defense contract. To gear up for the contract, they needed to hire 20 new employees at a cost of $150k per year, per employee. The contract stipulated invoicing once per month with net 30 terms. Knowing there would be a time lag of 45-60 days before invoicing was paid and the additional $500K required to cover payroll created panic for the contractor…the worst nightmare would be not being able to fulfill the contract. So, by offering an invoice financing solution that provided working capital to finance their existing and new contracts, as well as receive back-end billing support all without financial covenants, their dilemma was solved. Securing this financing also meant they could immediately bid and accept more contracts, without worrying about financial resources.

Q: What should a government contractor look for when seeking financing?

CA: First and foremost, a company that has knowledge of servicing the government industry vertical. Also consider, does the finance company offer dedicated support? Can you count on them to close the deal? Are they honest and straight-forward from the onset? Do you feel like they’re over-promising? If it sounds too good to be true, it probably is. Seeking a reference from a business advisor you trust is always recommended. At eCapital, we work with a network of referral partners in the banking, finance and law sectors. We take pride in having earned the trust of these professionals in referring their clients to us.

Q: Can you recommend the best online resources for government contractors?

CA: Of course! Navigating the web for trustworthy government contract sources can be a challenge. For those new to government contracting, you can register to do business with the U.S. government at and you can begin your search for federal government contracts at (formerly FedBizOpps). Also, the U.S. General Services Administration provides small businesses with detailed information about working with the U.S. government and an online search to find opportunities. For a complete list of recommendations, download eCapital’s Government Contractor Resource Guide.

If you would like more information about the government financing options available to your business, call Carol at 866.530.0123 or get in touch.

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