28 May Financing Government Contracts – Myths & Facts
Many lenders don’t like financing government contracts, but the reality is U.S. government, state and local government contracts can be financed.
One of the most pervasive myths among bankers and federal governmental contractors is that the accounts receivable (A/R) can’t be financed. Many state and local government contractors believe the same issue is true.
MYTH: Financing government contracts can not be financed because governmental contracts are not assignable.
FACT: Governmental contracts are normally not assignable, but the proceeds of the contract (A/R, and cash) are. That means a bank or non-bank lender can finance the accounts receivable associated with a government contracts.
MYTH: Governmental agencies are very slow payers.
FACT: Some single service projects may be slow pay, but recurring service or supply contracts pay relatively quickly after initially being set up. Some federal governmental contracts paying for recurring monthly invoices remit payment within 15-20 days.
MYTH: Financing government contracts is not safe.
FACT: Though most lenders do not understand governmental contract financing, they are a safe kind of receivables to finance.
MYTH: Financing government contracts has too much red tape.
FACT: Financing governmental receivables does have a number of rules and procedures associated with it which is why many lenders won’t finance them. There are experts who know how to work the paperwork so governmental contractors can be financed.
MYTH: No one can loan money against Medicare and Medicaid accounts receivable.
FACT: There are a few lenders who will lend against Medicare and Medicaid receivables. Contact us for more information. The US government has a very special law that makes it relatively easy to finance US Governmental Contracts. This is known as the “Assignment of Claims Act of 1940” it protects the financing source while providing for ways for financing sources to help small businesses serve the US government. State contracts can be financed, but a little harder due to:
- State governments don’t have a law that protects the lender such as the US Gov does.
- State governments can have a number of “offsets that financing sources don’t always feel comfortable with.
There is plenty of financing available. For more information download our detailed presentation from Slideshare that provides more detail on financing governmental contracts.
We have financed over $150 million in U.S. and state government contracts in the last 18 years. If you have questions, contact us for more information online or call us at 512-990-8756.