Professional and business services
Government Contractor Financing
A contract award is not cash. Factors, asset-based lenders, banks and SBA lenders all finance government contractors, and most of that capital is written against the contract receivable itself: mobilization funding, payroll funding, receivables financing and contract-backed lines of credit.
What lenders weigh in a government contractors file
- Funded backlog is what a lender sizes a facility to, because an unfunded ceiling on an indefinite-delivery contract obligates no dollars until a task order is issued.
- Contract type decides who carries cost risk: firm fixed price leaves overruns with the contractor, while cost-type contracts shift them to the agency but require auditable accounting.
- Prime or subcontractor position changes the whole underwriting, since a subcontractor's payment depends on the prime's credit and pay-when-paid terms rather than on the agency.
- The billing record matters more than the balance sheet, because an invoice rejected as improper resets the payment clock and the rejections show in the aging a lender reads.
- Past performance on comparable work tells a lender whether a new award is within the team's experience or a step up in size it has not managed before.
- Existing liens on receivables, including a forgotten cash advance, must be cleared before a factor or asset-based lender can take its position on the contract.
What gets funded
- Factoring of government receivables: Advances most of an approved invoice at submission, commonly 70 to 90 percent, with the agency notified under the Assignment of Claims Act on federal contracts. Written because the agency's credit, not the contractor's, repays it.
- Mobilization and payroll funding: Short-term advances against a signed, funded contract before the first invoice exists, for startup payroll, materials and bonding costs. Priced for the risk and repaid from the first invoices once a factoring or line facility takes over.
- Contract-backed lines of credit: Asset-based lenders and some banks write a revolving line against a borrowing base of eligible government receivables for contractors with a clean billing record. Cheaper than factoring, with covenants and monthly reporting.
- SBA 7(a) loans and the CAPLines contract line: Government contractors are eligible subject to the lender's credit policy. A 7(a) loan funds permanent working capital or an acquisition, and the CAPLines contract line is built around the cost of performing a specific contract.
- Equipment financing: Trucks, servers, tools and field equipment a contract requires, funded against the equipment itself by equipment lenders that accept thinner financials because the collateral carries the deal.
- Unsecured term loans and lines: Private lenders write these on owner credit and deposit history for the costs no contract facility covers, such as proposal work on the next bid or the gap between contracts.
Government Contractors funding guides
- Government Contract Factoring and Lines of Credit: Getting Paid Before the Agency Pays — Government contract factoring turns an approved agency invoice into cash within days, with the balance paid when the agency pays. How the assignment works, prime versus subcontractor, and when a line of credit takes over.
- Government Contractor Financing: Mobilization, Payroll and Receivables Funding — A contract award is not cash. Government contractor financing covers the weeks between mobilization and the agency's first payment through payroll funding, receivables financing, contract-backed lines of credit and SBA loans.
How MercFinancial places government contractors requests
MercFinancial is a commercial funding brokerage in Houston, not a lender, and it does not have a government contractor program or a promise of approval. A contractor's request starts with the file: the award or task order, the funded backlog, the billing record with the agency, the contract type, whether you are prime or subcontractor, the existing liens and the owners' credit. From there, the funding sources among MercFinancial's more than 160 whose credit policy allows the structure in question, factors, asset-based lenders, banks and SBA lenders among them, are identified, one file is placed with all of them, and the offers are compared side by side on advance rate, cost and terms.
Whether any product is available depends on the funding source, and when nothing fits yet, you are told that plainly along with what would change the answer. Stephanie, the lending assistant, pre-qualifies a request in a few minutes with a soft credit pull that does not affect your score, and a free call with a funding specialist is booked at the contact page.
Frequently asked questions
Can a government contractor get a business loan?
Yes, and more readily than most small businesses, because a funded government contract is strong collateral. Factors advance against approved invoices, asset-based lenders write lines against eligible receivables, equipment lenders fund the gear a contract requires, and SBA lenders write 7(a) loans and the CAPLines contract line. Which is available depends on the contract, the billing record and the funding source's policy.
How do government contractors fund mobilization and payroll before the first payment?
Through mobilization funding, a short-term advance against a signed and funded contract, and then through factoring or a contract-backed line of credit once invoices are being submitted. The first weeks are the most expensive to fund because no receivable exists yet. Contractors who plan the sequence before the award, rather than the week payroll is due, get the better structure.
Can government contractors get SBA loans?
Yes. Government contractors are not excluded by 13 CFR 120.110, so an SBA 7(a) loan is available through any SBA lender whose credit policy accepts the file, and the SBA CAPLines program includes a contract line designed around the cost of performing a specific contract. Expect personal guaranties, tax returns and a backlog schedule, and a longer closing than a factor or asset-based lender.
What is the Assignment of Claims Act?
A federal law that allows a contractor to assign the payments due under a federal contract to a financing institution, with notice to the agency. It is the mechanism that lets a factor or lender be paid directly by the agency on a federal contract, and it is the first clause a contract lender reads. State and local agencies have their own rules, which vary.
Can a subcontractor on a government project get financing?
Yes, with more scrutiny. A subcontractor invoices the prime rather than the agency, so the factor or lender underwrites the prime's credit and the subcontract's terms. Pay-when-paid clauses, retainage and a right of setoff reduce the advance, and a prime with weak credit can make the invoices hard to fund. A subcontract with a well-capitalized prime and clean payment terms is readily financed.
Financing for this industry
- Business Funding — Eight programs, one file, 160+ lenders.
- Unsecured Business Loans — Term loans and lines without specific collateral, for businesses with steady deposits.
Related industries
MercFinancial is a commercial funding brokerage, not a lender. Approval, loan amount, rate, term and funding are decided by the funding source on the strength of the file; nothing on this page is an offer or a commitment to lend.