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Government contract financing helps businesses obtain working capital for contracts won from federal, state, or local government. Factoring government contracts – which is the sale of outstanding invoices to a factoring company or a bank – is one of the ways to fund the project.
Every year, the U.S. and Canadian governments award billions of dollars of contracts to small and medium-sized enterprises (SMEs) to help create jobs and foster long-term economic development.
While working with a government entity may be a lucrative opportunity, many SMEs have to fund upfront costs and other operating expenses before being able to take on a project. They also have to wait for the government to pay invoices, which can take one to two months. Government contract financing helps businesses obtain the working capital they need to successfully put together bids and monetize invoices after the contracts are completed.
With government contractor financing, approval is based on the credit of the government debtor, not on your business’ operating history. Once verified, advances arrive quickly, and the balance is released when the agency pays reliably. This gives you a predictable cash flow cushion from financing government receivables that scales with your awards.
Reach out today and discover the best funding solutions for your business.
How Government Contract Financing Works
Accelerate Cash Flow With Fast Government Contract Financing
Business Factors turns approved receivables from federal, state, or local agencies into immediate working capital. Instead of waiting up to 60 days, you receive a cash advance based on your invoice value, without taking on term debt or giving up equity.
Here's how it works:
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Perform the Work and Invoice the Agency
Get awarded, perform work, and issue an invoice to the agency.
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Apply With a Government Factoring Company
Apply with a lender or government factoring company; submit contracts, invoices, and W-9.
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Contract Verification and Assignment of Claims
The funder verifies the contract and requests Assignment of Claims approval from the contracting officer.
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Receive Your Advance
You receive an advance of 70 to 90% of the invoice upon approval.
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Agency Payment and Reserve Release
The agency pays to the funder’s designated account; your reserve balance is released, minus fees.
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Repeat and Scale With New Invoices
Repeat as new invoices are issued; limits typically scale with award size.
Costs and Fees
Know the Fees Before You Factor
At Business Factors & Finance, we offer invoice factoring services tied to real activity. The core cost is a discount fee charged only while the invoice is outstanding. It’s quoted weekly or monthly.
Businesses can finance government contracts through factoring, asset-based lending, or the Small Business Administration (SBA) loans. Contact Business Factors today to find the best alternative for your business.
The best financing option ultimately depends on your business’s unique situation. For instance, if the business needs immediate capital but has minimal assets, factoring can be a good option. If the company has at least $1 million in eligible assets, including inventory and accounts receivable, and these assets are not pledged to another lender, asset-based lending could be a good choice. If your business meets SBA requisites – two or more years in business, sufficient equity, etc.– such a loan or revolving facility may be a good option.
Typical Advance/LTV:
80% to 90% of approved invoice
Typical Advance/LTV:
Borrowing base tied to eligible A/R (and sometimes inventory/equipment)
Typical Advance/LTV:
N/A (term loan, not tied to specific invoices)
Typical Advance/LTV:
N/A (fixed-asset financing)
How Payroll Factoring Fees Are Structured
Fees are typically charged as a discount on outstanding invoices, calculated in monthly (30-day) or weekly increments. Choosing between monthly and weekly pricing should align with your agency’s average days to pay and cash flow cadence.
Here’s a sample computation:
Invoice: $300,000
Advance rate: 85%, which equals $255,000 upfront and $45,000 in reserve.
Monthly Fee Model
Assume a 3.0% per 30-day discount and a one-time $250 due diligence charge. If the agency pays in 45 days, most providers bill two 30-day periods:
Discount fee: $300,000 × 3% × 2 = $18,000 One-time due diligence: $250 Total cost: $18,250 (plus any pass-through wires/UCC filings)Weekly Fee Model
Assume 0.75% per week. If the agency pays in 5 weeks:
Weekly fee: $300,000 × 0.75% = $2,250 Total discount over 5 weeks: $2,250 × 5 = $11,250 Add any pass-through charges (e.g., $20 wire) for a precise total.Hidden Fees and How To Avoid Them
Some offers look cheap until add-ons hit your margin. Here’s what to watch for and how to stay in control:
Here's what to watch for:
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Early Termination & Auto-Renewals:
Long terms with steep exit fees or 60 to 120-day notice windows.
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Monthly Minimums and Volume Requirements:
Charges if your awards or task orders fluctuate.
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Bucket Billing:
Full 30-day fees (or step-ups after 30 to 45 days) instead of daily or weekly proration.
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Processing and Admin Fees:
Due diligence, UCC filing, wire/ACH, lockbox, credit checks, annual renewal.
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Government-Specific Charges:
Assignment of Claims handling, contract modification re-verification, and lien subordination with your bank.
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Concentration or “Slow-Pay” Surcharges:
Extra costs tied to a single agency or longer pay cycles.
Practical Tips To Avoid Hidden Fees
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Request a written, itemized fee sheet and a sample settlement using your typical pay timeline.
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Confirm prorated fees, reserve release timing, and all pass-through caps in the agreement.
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Verify termination terms, notice periods, and any minimums.
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Choose a government factoring company with transparent pricing and no hidden add-ons.
Why Your Business Needs Government Contract Financing
Proven Solutions To Solve Real Cash Flow Challenges
Government contract financing keeps projects on schedule when pay cycles lag. A trusted government factoring company advances cash so you can staff up, buy materials, and cover mobilization, compliance, and vendor commitments. It’s efficient funding for government contracts that scales with your receivables.
Industries That Benefit From Factoring
Predictable Funding for Government Contractors
Here’s how our government factoring company helps businesses across multiple sectors:
Information Technology And Cybersecurity
Construction And Engineering
Professional Staffing And Security Services
Logistics, Freight, and Last-Mile Delivery
Manufacturing and Defense Subcontractors
Facilities Maintenance and Janitorial
A Fast Way To Fund Your Project
When delays aren’t an option for your business, we deliver fast and reliable solutions that give you immediate access to working capital. Protect your business’ financial stability so that you can focus on growth.
Talk to Business Factors specialists and discover a smarter, more dependable way to fund your operations.
FAQs
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How fast can I get funded?
Most contractors receive funds within 24 to 48 hours after setup, the Assignment of Claims acknowledgment, and invoice verification. Subsequent invoices typically fund on the same fast cycle.
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What do I need to qualify?
An awarded contract or task order, approved invoices, UEI/SAM (for federal), Assignment of Claims paperwork, and a clear lien position. We underwrite the paying agency’s credit more than your operating history.
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Recourse vs. non-recourse: what’s the difference?
Recourse costs less, but you’re liable if payment fails for non-credit reasons. Non-recourse shifts covered credit nonpayment risk to the factor; disputes, performance, and documentation issues are usually excluded. You confirm coverage in writing.