Government Contract Financing 101 : Securing Growth Capital ( Part 1 of 5)

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A recent Federal Reserve study, found that only 50% of small businesses seeking loans in 2010 were approved for credit!

Sadly only 30% of those approved for funding received all of the funding they requested!

Three to fives times per week, my vice president of government contract lending receives a frantic call from a supplier, manufacturer, or distributor stating they only have 7 days remaining to deliver on a lucrative government contract, but lack the liquidity or bank financing to fulfill their contract.


Insider Contract Financing Tip # 1

Most traditional bankers focus on historical profitability vs. your existing contracts!

While you feel extraordinary about having a $1,000,000 contract in hand, your banker will request and analyze your last three years of tax returns to see whether you would have been able to make the proposed loan payment for this $300,000 loan you are requesting.

Your banker will want to know that you had the necessary cash flow in 2010, 2009, 2008 to serve this debt.

You tell your friendly neighborhood banker that you spent the last three years heavily courting and marketing to your #1  government target and derived very little other income during that period. Again you remind you banker that your hard work has paid off as you beat out 200 bidders for this great government project.

Financing Success Tips

 1.) Connect with your banker, prior to bidding on your government contract and determine their lending requirements.

2.) Submitting a pre-approval from your bank often strengthens your bid and also puts your banker on notice on the type of funding you may need in the near future.

3.) If you banker does not show a strong interest or appetite in financing your potential government project this leaves you plenty of time to identity other lenders who may be able to deliver funding on your project.

4.) Prior to connecting with your banker have a clearly defined plan on how you are going to repay the proposed debt. For example, you must be able to show your banker the following :

A.) How often you are paid from the contract, ( every 30 days, 60 day etc. )

b.) How much you are paid monthly from the contract

c.) Show that the monthly revenue derived from the contract exceeds that of the expected monthly loan repayment plus your general operating expenses of your business. ( rent, payroll, material, utilities, insurance, etc. )

d.) It would be helpful to show the length of the government contract ( 3 years contract, pays monthly )

e.) Being able to show the lender that you have a financially sound client, who is guaranteed to paid alleviates many of your bankers fears of not being paid back.

f.) Show your banker, that you have a non cancellable contract with a strong financially sound government entity who always paid as agreed.

I trust you have obtained some insight on financing your next government contract. In part 2 of this 5 part series on Financing Your Government Contract we will explore how to identify a specialty lender if your local banker is unwilling to fund your next contract.

In the comment section below we’d love to hear your thoughts on this particular blog post. If you’ve found this content useful, please tweet it, facebook it, or simply email it to a friend or colleague.

To Your Contract Success

Edward E. Felder, Jr. MBA

813 900-1667

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