Sunday, August 27, 2006

Government Contracts Funding and Katrina

It's been a year since Hurricane Katrina ravaged New Orleans and the Gulf Coast. Today's LA Times offers a look at the slow progress being made injecting government funding into rebuilding the area. With reports that disbursement of recovery loans from the SBA has been marred by "significant delays", obtaining the financing needed to complete the rebuilding effort may also create roadblocks along the way.

Small and medium sized businesses will be at the forefront of rebuilding New Orleans and the surrounding area. Much of that rebuilding over the next few years will likely be completed under contracts with federal, state or municipal government agencies. Many of those contracts will involve payment only upon reaching certain milestones and may include retention clauses holding back a small percentage of the payment until the job is fully completed.

No doubt the employees and vendors providing the materials and labor will not be interested in the timing of those government disbursements which could extend for eight weeks and more. Particularly employees who like to be paid every week.

If you're not able to access funding from your bank, there are funding sources that specialize in providing financing when your customer is a government agency or a prime contractor fulfilling a government contract. The funding is structured as a revolving line of credit or a term loan and is secured on a senior basis by the contract, accounts receivable and other appropriate collateral. In some cases, a business can borrow up to 90 percent of eligible accounts receivable. Rates will be a bit higher than bank interest rates, but can be much less expensive than factoring.

So if you're providing products or services to the government or to a prime contractor fulfilling a government contract, don't get caught in a working capital squeeze. Financing is available - feel free to give me a call and see if I can help.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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