Purchase Order Financing For Government Contracts
The money set aside for federal government contracts is set to grow even larger in the second half of 2021, and as business owners prepare to try and get their pieces of the pie, one of the financing vehicles that can help them is government purchase order financing.
What is Purchase Order Financing?
Purchase order financing, (PO financing) which is offered by both traditional and alternative lenders, is a form of short-term financing that will enable your suppliers to get paid for goods and services that you need to fulfill an order for a customer. For example, if you own a small car dealership and you get an order for 50 limousines from a customer and don’t immediately have the cash to pay the manufacturer for those vehicles, you can use PO financing to purchase them.
The advantages of using this type of financing are endless. Through PO financing:
- The lender will take on invoice collection responsibility with your customer;
- You can maintain your existing cash flow without having to take on new debt;
- You can fulfill orders and cover supplier costs without impacting your ability to cover operation costs, and
- PO financing will allow you to grow your business by showing potential customers your ability to quickly supply goods and services.
By using alternative lenders such as Kapitus, the application will be simple; depending on the creditworthiness of the customer, your PO Financing rates can be as low as 1.25%, and you often can get approval within a day.
Government Contracts Are a Gold Mine
The federal government offered $682 billion worth of contracts to private businesses in 2020, a 14% increase from 2019, and is set to offer an even higher amount in the next fiscal year, making it a gold mine for both small and big businesses alike. Contracts for health care providers and medical equipment suppliers jumped 50% in 2020, due in large part to the COVID-19 pandemic. Contracts for IT services – a field in which many small businesses operate – have grown by an average of $6.8 billion year-over-year since 2015, while contracts for miscellaneous services such as small construction and architectural projects and legal services are also expected to increase this fiscal year.
Small businesses are expected to continue to benefit from government contracts this upcoming fiscal year, as the federal government’s contracting program will continue to ensure that a “fair proportion” of federal contract and subcontract dollars is awarded to small businesses.
The government, under its Small Business Goaling Report, reserves contracts that have an anticipated value greater than the $10,000 micro-purchase threshold, but not greater than the $250,000 simplified acquisition threshold exclusively for small businesses. It also authorizes federal agencies to set aside contracts that have an anticipated value greater than the simplified acquisition threshold exclusively for small businesses and authorizes federal agencies to make sole-source awards to small businesses when the award could not otherwise be made.
Simply put, whether you’re a small medical research or supply company; a construction firm; an IT company; a law firm or even a small car dealership, there are all sorts of government contracts out there waiting for your business to bid on.
PO Financing for Government Contracts
If you do decide to try and take a slice of the government pie by bidding on a contract, you’re most likely going to need PO financing, since most government contracts require a large amount of materials. No matter what type of government contract you are bidding on, be it a Work-in-Progress or a Finished Goods contract, PO financing will enable your business to fill orders and avoid the risk of late delivery that could cause you to lose a government contract altogether.
PO financing for government contracts allows your company to:
- Bid on large government contracts by providing 100% funding for the transaction;
- Have greater availability to funds than standard business orders;
- Not have to rely on personal credit to get a loan, rather, lenders rely on the credit of the end-customer (and who has better credit than the federal government?), and
- Have access to flexible payment plans and loan sizes, depending on the business cycles and opportunities.
In all, while government contracts are highly competitive–especially for small businesses–your company needs to be ready with the supplies when you bid on them. PO financing will give you the funds and the flexibility to grow your business when you are ready to grab a piece of the government pie.