Myths Surround Financing Government Contracts

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: Governmental contracts are not financeable 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 contract.
  
• 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.
  
• FACT: Though most lenders to not understand governmental contract financing, they are about the safest kind of receivables to finance.
  
• FACT: Financing governmental receivables does have a number of rules and procedures associated with it which is why many lenders won’t finance them.
  
• FACT: Though there are a few lenders who will lend against Medicare and Medicaid receivables, they are rare.
  
• 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 are financeable, 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. I have uploaded a detailed presentation to Slideshare that provides more detail on financing governmental contracts.

Sam Thacker is a partner in Austin Texas based Business Finance Solutions.

You may contact Sam directly at: sam@lesliethacker.com

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