How to Find Funding for your Contracting Business

Posted by Administrator on December 29th, 2006

If you are just starting to look into government contract work, you may need local contract funding or small business government loan options to help you work the contract. Before you start looking for financial institutions to help you fund your end of the job, here are some tips to help you make the best funding decisions for your contracting company.

Before you contact any financial institution regarding a small business government loan or other financial backup for your company, make sure that you have a clear understanding of your ability to repay a government small business loan from the cash flow standpoint of your business. Consider how your company effectively demonstrates management capabilities, character, collateral, as well as the equity contribution of your company’s owner. Keep in mind that many small business government loans require that the owner guarantee the loan payments.

The Small Business Administration is the best local contract funding resource available to small businesses that I’ve found. They provide a lot of small business assistance programs, including small business loans, equity capital, surety bonds, special purpose loans, and small business grants. Private and other institutions usually do not offer small business government loans. Although the SBA doesn’t necessarily fund their financial assistance programs, they are the guarantor of government contract loans made by these institutions.

The interest rate charged by the SBA depends on your business’ ability to repay the government contract loan and how your business decides to use the proceeds. However, there are a few general terms that will give you an idea of the type of repayment schedule you can expect for a small business government loan. Generally, working capital takes from five to ten years for repayment and fixed assets take up to 25 years. Both variable and fixed interest rates are available. Ultimately, the interest rate is negotiated between the lender and the borrower.

For more information on financial assistance programs offered through the SBA, visit http://www.sba.gov/services/financialassistance/index.html.

Alternatives to Loans and Funding through Institutions

Grants are an ideal alternative to loans in that you won’t have to owe anyone money after securing a grant. However, grants are hard to come by and have specific guidelines about how the money should be used. For example, the SBA offers limited small business government grant programs that generally support intermediary lending institutions, non-profit organizations, and state and local governments.

Another option to consider is seeking a loan from a business partner or working with a partner on the contract. Oftentimes, you can negotiate the best interest rate and payment schedule with a partner. If you’d rather avoid the process of obtaining a loan, a partner will be a great alternative to back you up financially, if your contract allows (and if the partner has the capital and flexibility to provide you with the funds).

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