Each fiscal year, the federal government spends approximately $500 billion on almost every type of service and supply imaginable in support of government operations. It’s a lucrative target for savvy small business owners that study the best ways to navigate the federal government marketplace. Small firms with experience and past performance have the potential to win millions of dollars in contracts; however, they often struggle with access to capital.
Capital is a real game changer, because the federal government requires contractors to deliver products in advance of payment and/or perform for up to 30 days before submitting an invoice for payment. The standard payment terms are net 30 days after receipt of invoice. For service contracts, contractors often struggle with cash flow to cover four to six weeks of direct payroll and expenses while waiting on payment from the government.
Without the cash on hand or sufficient lines of credit, small firms can’t compete for larger contracts or they take a very risky chance with predatory lenders and/or high interest rate factoring.
Live Oak Bank is now bridging the cash flow gap with a new mobilization financing product, so business owners can confidently take on million-dollar projects knowing that funding is available for direct payroll and expenses from the start of the contract. While almost any bank can provide a secured or unsecured line of credit for small firms, mobilization financing requires the small business owner to take a huge risk from the time they win the federal contract to the time they can invoice for the work.
As a former federal senior executive leading within the top 1% of government’s leaders, I saw firsthand how small firms stimulate the economic strength of the nation. Small firms are agile, innovative, and create two-thirds of all new jobs. As such, Congress requires federal agencies with contracting authority to set aside a percentage of eligible contract opportunities/dollars for different types of small and disadvantaged businesses. Remarkably, federal agencies have collectively exceeded the 23% congressionally mandated goal for the last five consecutive fiscal years, awarding over $99 billion/year to small firms. Set-aside programs have opened tremendous doors for startups, emerging businesses, and underrepresented businesses. The government offers set-aside contracts for all types of small firms and has special set-aside sub-categories for firms that are 51% owned and controlled by women, service-disabled veterans, 8(a) participants, and firms certified in historically underutilized business zones.
However, access to capital to perform on government contracts remains one of the most difficult challenges for small and disadvantaged business owners across the country.
Mini Mobilization Financing Case Study
Candace Cottner, President of Global Aviation Technologies won a $32 million airplane maintenance contract from the US Department of the Air Force in May 2017. She needed a large line of credit for payroll and expenses as she completed the project. More importantly, Candace needed mobilization financing to cover the first four to six pay periods prior to receiving the first government payment.
Live Oak Bank flew a team to Wichita, Kansas to talk with Candace and her leadership team. It was clear during the site visit that her woman-owned small business would not succeed on the Air Force contract without the support of a bank that understands government contracting.
Today, Live Oak Bank supports Candace’s cash flow needs and offers her the expertise necessary to continue to grow and navigate the federal procurement process. Candace started Global Aviation Technologies in 2002, and the Air Force contract is the largest contract awarded to her firm to date. She takes special pride in providing the federal government real solutions that work for legacy aircraft. Candace is great leader, and her team is committed to quality customer service that is efficient, affordable and, above all, fair.
Working with a lender who specializes in government contracting lending is key. Since 2016, Live Oak Bank has lent more than $150 million to government contractors nationwide. If you are a federal contractor and are looking for funds to improve your business, learn about your mobilization financing options here.