Government Contractor Loans
The loans available to government contractors, sorted by what you need the money for: payroll, mobilization, receivables, equipment or growth. What each is underwritten on and how fast it closes.
A government contractor can get seven kinds of loan: a contract line of credit, invoice factoring, purchase order financing, an SBA 7(a) loan, a bank line of credit, a term loan and an equipment loan. Which one fits is decided by what the money is for and how soon you need it. Money for payroll on an award you have already won is a different loan from money to buy a competitor, and the lender for one is rarely the right lender for the other.
Most people searching for a government contractor loan want working capital for an award: cash to cover payroll and suppliers through net 30 or net 45 payment terms, on top of the month of work it takes to have something to invoice. If that is you, the first two rows of the table below are where to start.
What loans can a government contractor get?
| Loan | What it funds | Underwritten mainly on | Typical time to close |
|---|---|---|---|
| Contract line of credit | Mobilization, payroll and receivables on a specific award | The paying agency and the contract | Days |
| Invoice factoring | Cash now against invoices the agency has approved | The agency’s obligation to pay the invoice | Days |
| Purchase order financing | Paying a supplier to fill a goods order | The confirmed purchase order and the agency behind it | Days to weeks |
| SBA 7(a) loan | Working capital, equipment, real estate, refinancing | Your business: history, cash flow, collateral, guaranties | 30 to 90 days |
| Bank line of credit | Recurring working capital across all your customers | Two to three years of financial statements | Weeks to months |
| Term loan | One-time investments: an acquisition, a second office, capability | The whole business and the durability of its revenue | Weeks to months |
| Equipment loan | A specific vehicle, machine or system | The equipment itself, plus the business | Days to weeks |
The column that matters most is the third one. Every lender looks at your financials in the end, but they start from different places, and where they start decides who they can say yes to and how fast.
Can I get a loan against a government contract?
Yes. That is what a contract line of credit is. The lender starts from the agency paying you, then the award, then your financial history. Federal, state and local agencies are strong credits, and that strength carries into the loan, which is why a contractor whose financial history has not yet caught up with what they have won can still be funded on the award.
On federal work the mechanism that makes this possible is the Assignment of Claims Act, which lets the agency pay the lender directly once the assignment is acknowledged. State and local awards use their own rules for the same step, covered in our guide to state and local contract financing.
A contract line usually moves through three stages as the award matures:
- Before the first invoice: mobilization funding for hiring, equipment, bonding and travel to the site.
- While you perform: payroll funding on your normal pay cycle, so your people are paid before the agency pays you.
- After you bill: advances against the receivable until the agency’s payment arrives.
Which loan fits what I need the money for?
Start with the use, not the amount.
- Payroll and suppliers on an award you hold. A contract line of credit or invoice factoring. Both turn the agency’s promise to pay into cash on your timeline. Factoring sells individual invoices and suits a contractor with one main customer; a contract line revolves across the life of the award. Our side-by-side comparison goes through the trade-offs.
- Getting started on a new award. Mobilization funding, usually as the first stage of a contract line, because the costs land before there is an invoice to borrow against.
- Showing a contracting officer you can perform. A financial capability letter. It is evidence that financing is in place for a bid. It is not a commitment to lend, and any lender who issues one should say so plainly.
- Paying a supplier before you can deliver. Purchase order financing, which pays the supplier against the confirmed order.
- A truck, a machine or a system you will keep. An equipment loan, so the asset is not using up availability on a working capital line you need for payroll.
- Buying a firm, opening an office, refinancing. A term loan or an SBA 7(a) loan, both underwritten on the business as a whole.
How do SBA loans work for government contractors?
SBA loans are made by banks and other approved lenders, with the U.S. Small Business Administration guaranteeing part of the loan. The maximum 7(a) loan is $5 million, and the SBA guarantees up to 85% of loans of $150,000 or less and up to 75% of larger ones.
One program within 7(a) is built for contractors. The Contract CAPLine “finances the costs of one or more specific contracts”, can be revolving or non-revolving, and runs for up to 10 years. In practice it is still underwritten like other SBA loans, on the business, its history and its collateral, so it suits an established contractor with time to wait for approval.
How fast can a government contractor get a loan?
It depends almost entirely on where the lender starts.
A lender that starts from the contract and the agency can close in days, because the main question has a public answer: who is paying, and how reliably do they pay. A lender that starts from your business needs two to three years of statements and tax returns, a collateral review and often personal guaranties, which is why bank lines can take months and SBA loans commonly take 30 to 90 days.
Neither is better in the abstract. Bank and SBA money is usually the cheapest available, and a contractor with a strong balance sheet and no deadline should use it. A contractor whose payroll is due before the first payment arrives needs the loan that closes in time.
What do I need to apply for a government contractor loan?
For a contract-based loan:
- The award or task order, with modifications
- Recent invoices and the agency’s payment history on them
- An accounts receivable aging report
- Year-to-date financial statements
- Your SAM.gov registration and CAGE code for federal work
For a bank, SBA or term loan, add two to three years of business tax returns and financial statements, a debt schedule, personal financial statements for the owners, and a description of the collateral.
Having the first list ready on the day you win the award is the single thing that shortens funding time most.
Common questions
Can I have a bank loan and a contract line of credit at the same time? Yes. An intercreditor agreement sets out which lender has first claim on which assets, so contract-based capital can sit alongside an existing bank line without disturbing it.
Do I need to have won the contract to get a loan? For a contract line of credit or factoring, yes, because the award is what is being lent against. Before an award, a financial capability letter can support the bid, and a bank or SBA loan can fund general working capital.
Can a subcontractor get a government contractor loan? Yes. Subcontracts are financeable. The lender looks at the prime contractor’s payment record as well as the agency’s.
Does a set-aside certification change which loans I can get? It does not change contract-based lending, which follows the award. 8(a), HUBZone, WOSB and SDVOSB status decides which contracts you can compete for, and some SBA programs consider it.
Will applying hurt my credit? A contract-based lender’s main review is of the award and the agency. Most lenders also pull business credit, and some pull personal credit, so ask before you apply.
Not sure which loan you need?
Most contractors are not, and the answer usually takes one conversation. Tell us about the award, how much you need and by when, and we will tell you which loan fits, including when the right answer is your bank.