The devil is in the details for government contractors. To know the details before you sign and close a deal will not only help you solidify a winning strategy for your business but also validate your approach to gaining new business.
Retain effective counsel. During any transaction with a lender, you are subject to your lender’s underwriting processes, which will involve lender’s counsel and other bank personnel. No matter what size or purpose of the loan, or the size of your company, be sure to retain your own counsel. Your counsel will, at a minimum, review all loan documents and act as your advocate. Involve your counsel every step of the way. Don’t try to save money by keeping him/her out of the loop until a certain specified time as it may ultimately result in additional transaction expenses. Ask yourself:
- Does the counsel have experience in federal government and small business procurement?
- Does the practice have experience in both lender and borrower representation with respect to all types of loans, as well as sophisticated commercial transactions, such as mergers and acquisitions?
Know your lender. Lenders offer varying terms and types of financing.
Make sure you select a lender with deep knowledge of government contracting. Working with a lender who knows your industry saves time and frustration and allows a simpler loan process.
Check to ensure you are receiving economic and commercial terms that make sense for you. Ask yourself:
- Does the lender offer lending products tailored to your unique business challenges?
- Is the lender strategic and able to anticipate issues and estimate your overall business risks? Does the lender know how your contract pipeline works for your business?
- Does the lender have experience with complicated government business processes and leading complex, cross-functional teams?
- Does your lender understand your working capital need during the initial 4-6 pay periods post-award?
- Does your lender understand how to underwrite a business acquisition based upon the pro forma value of seller and your combined contract backlog?
- Is your lender comfortable structuring $5-12 million business acquisitions with a flexible equity contribution comprised of a subordinated seller note and cash from you?
- Is your lender comfortable lending to start-ups who have won a new subcontract and/or prime contract?
- Is your lender comfortable utilizing SBA loan products alongside conventional bank products?
Know yourself. Take the time to strategize and organize yourself ahead of time to avoid any deal-killing surprises. Always negotiate a letter of intent (LOI). An LOI will set out the major deal terms and allows both sides to agree to it before proceeding to sign definitive documentation. Although typically non-binding, an LOI is an important tool for negotiating deal terms and extinguishing potential deal-killing fires before they happen. Finally, an LOI is an effective way of avoiding unnecessary deal expenses before they are incurred, particularly in cases where the parties cannot reach acceptable terms.
Live Oak Bank’s mission is to create an unprecedented banking experience for small business owners nationwide, through service and technology. We understand the opportunities and challenges facing Federal Government contractors. Whether you’ve just been awarded a major contract and need working capital, need to refinance existing debt or decide to grow your firm through acquisition, let us be your financing solution.