Financing Government Contracts for Small Businesses
Government contracts are an excellent way to diversify your company’s revenue stream and grow your overall business. These programs are especially attractive to specially designated Small Businesses, Women-owned businesses, and veteran owned businesses as regulations require a portion of the contracts to be awarded directly to them.
While working government contracts require much more paperwork and bureaucracy, the Fed has taken steps to streamline the registration and billing process by moving everything to online portals. This significantly reduces the wait times associated with physically mailing documents and allows more time for companies to focus on the work and supporting documents needed to bill the job.
Prior to being eligible to receive any government contracts, your business must have a verified Duns & Bradstreet number. Registration is free and you may already have one in place. Once your business has been verified, you can sign up for a free account at the U.S. General Services Administration Federal Government System for Award Management (SAM.gov) to gain access to the basic features of the site. The SAM.gov site works together with the Federal Service Desk (FSD.gov) so don’t be too concerned when you are redirected a few times.
Once you have signed-up for an account you can then proceed to register in SAM for a Unique Entity Identification. This process is much more intensive and will require all normal business documents available to fill in the forms. Fortunately, the US government has streamlined the process and all document uploads can take place through the system.
Now that your company is registered, you should receive a Commercial & Government Entity (CAGE) Code number that acts as your unique identifier (similar to an EIN or SSN) assigned to supply government and Department of Defense agencies. In order to bid and receive payment on work conducted through a government contract, your company must have an assigned CAGE code.
All government contract opportunities are available on the SAM.gov Search. All acquisition awards are public domain, and your company will still need a SAM.gov user account. However, anyone can view potential and awarded contracts even without a registered entity with a CAGE Code. This is a excellent way to prospect opportunities and see compare awarded contracts.
Once you know your targeted criteria and have identified possible opportunities, its time to submit the bid.
Bidding on Contracts
Identifying the right contracts to pursue will take some time. You’ll need to ensure your company has the capabilities and resources to fulfill the contract in a timely manner. A full list description is provided within the Contract Opportunity; and when submitting a bid, a full description of your company’s capabilities will need to be provided along with completing the several attachments to accommodate the scope of the deal. While it may seem like a lot of paperwork, the contracts are well funded and there are certain stipulations – especially for small businesses – to ensure you get paid on time. Even with the benefit of rapid payment, small businesses still struggle to stay liquid and ensure all bills are paid and salaries are covered.
Fortunately, the government has identified this and have put in mechanism to assist awarded companies with cash-flow – even with a secured party.
Finding the right financing
Lines of credit at a bank of undergone several types of variations. The “old-school” cash-flow line where a credit limit is set, and companies can draw freely upon up to their limit have grown rarer for smaller businesses. Any resemblance of that is now through issuing business credit cards and most loans are now structured as an Asset-Based loan (ABL) where a combination of accounts receivable, inventory and equipment establish the collateral for the borrowing base. While ABLs are more restrictive than a cash-flow line, they help keep the debt under control. However, there are still limitations to a traditional ABL; and, when taking on new business such as a government contract, there may not be the availability needed to meet growing cash-flow obligations.
Alternative ABLs from lenders like Camel Financial offer a better solution for smaller businesses experiencing rapid growth periods and our flexibility is higher because of the individual monitoring of all aspects of collateral. Instead of a once-a-month report, you’ll get around the clock access to your relationship manager. Even better, the federal government will recognize the relationship and conform to all payment requirements for the financier. This allows for your company to worry less about having the liquidity for materials and payroll and instead focus on completing the job.
Government contracts can be an incredible way to grow your revenue and add to your bottom line – especially for small businesses. While the process to get start may seem a little daunting, once you are registered and have received a designation, a new world of business development opportunities are at your fingertips. And, with the right financing in place, you’ll have the peace of mind knowing that you can complete the job without any issues with cash-flow.
If you’re interested in learning more about government contracting and getting setup in the system, give Camel Financial a call and we’ll walk you through the opportunities.