Government contract financing works perfectly to help businesses get the working capital for contracts that are won from the state, federal, or local government. One of the ways to fund the projects is through factoring, where outstanding balances get sold to a factoring bank or company that collects on the invoices and remits them minus their factoring fees. The other options worth considering include asset-based lending and SBA loans, and the payment assignments to factoring companies get approved by a government contracting officer. The business factors specialize in Small Business Administration (SBA) loans which start at $50 000 and work perfectly to fund the projects.
Government contract financing options
Business Factors & Financing enables businesses to finance government contracts through government contract factoring, asset-based lending, or Small Business Administration (SBA) loans. Business Factors enables businesses to find the best alternative for their businesses using the best skilled and experienced professionals depending on the unique situations of the business. An example is when a business requires immediate capital but has minimal assets, making factoring a considerable option to consider to get the required funding. If the business has $1 million as eligible assets, which includes the accounts receivable and inventory, then the assets don’t get pledged to another lender making asset-based lending a great option. If the business meets SBA requirements, such as two or more years in business and sufficient equity, among others, then the loan or revolving facility makes a good option.
The advantages of factoring
Factoring is sometimes known as invoice financing or accounts receivable factoring, a quick and easy way of monetizing outstanding invoices. The invoices get monetized at a discount by selling them to a specialized factoring company or bank, giving the business several advantages. Some of the significant government contract factoring advantages include its reliance on the client’s creditworthiness which makes it suitable for short credit history businesses. Also, the process requires less paperwork with fewer eligibility requirements than a bank loan and is flexible, enabling the business to sell several invoices without a long-term signatory commitment. Additionally, the factoring process isn’t a loan; instead, it is a sale of an invoice to a factor that gets to collect on it from the client and charge fees for the factoring sees. The factoring companies do due diligence on the invoice clients to determine their ability to pay before accepting to collect the invoices.
Types of factoring
Two different kinds of government contract factoring have numerous benefits to the business. The first one is non-recourse factoring, where the factor takes full responsibility for collecting the invoice no matter how long it takes. The client receives no chargeback if the factor fails to collect on the invoice, and the client can repay the factor or replace the invoice with a new and creditworthy one. The government contract factoring gets initiated when the factor gets provided with a copy of the invoice enabling them to advance a portion of the outstanding amount and hold the remaining reserve. Once the invoice is paid, the business receives the remaining balance minus the factoring company discount rate and additional fees.