Four ways to finance a federal award, and what each costs on the same $10M contract
By GovCon Finance
Invoice factoring, asset-based lending, contract financing, and a bank line, assessed against one contract on five criteria. The criteria are published before the assessment. No structure wins, because a structure fits a configuration and the rest don't.
The criteria
Five questions decide this on a federal contract. They're in the order they matter, and every structure below is assessed against all five.
Speed to funding. Days from a complete file to money in the account. The contracting officer's performance date doesn't move, so a structure funding after the date isn't an option at any price.
What it underwrites. The award, or the balance sheet. This is the whole question on a federal contract, and it's why a $3M balance sheet holding $20M of set-aside access gets four different answers from four structures.
Assignment of Claims handling. Whether the structure requires an assignment under FAR Subpart 32.8, and whether the provider has executed one. Routine for someone who has done it. Three months for someone who hasn't.
Cost. Total cost against the contract, not the headline rate. A rate isn't a cost until you attach a duration and a drawn balance.
Bonding interaction. What it does to your surety's view of your balance sheet. Some structures add capacity. Some consume it.
The structures
Contract financing
Capital advanced against the award itself, repaid from the government's payments as they arrive.
Speed to funding. [CLIENT DATA: Sanctorum funding speed, days from complete file]
What it underwrites. The award. The payer is the United States, so the credit question is answered before it's asked.
Assignment of Claims handling. Required. Executed by the provider under FAR Subpart 32.8.
Cost. [CLIENT DATA: Sanctorum cost, % per 30 days, run against the $10M contract]
Bonding interaction. [CLIENT DATA: direction and magnitude.]
When it is wrong. When the margin on the contract is under [CLIENT DATA: Sanctorum margin floor, %], because the cost of the capital eats the job. And when a cheaper facility already exists with room on it.
Invoice factoring
Individual invoices sold at a discount after the work is delivered and accepted.
Speed to funding. Fast once the invoice exists. It does nothing before delivery.
What it underwrites. The invoice, which means the receivable rather than the award.
Assignment of Claims handling. Required on a federal invoice. Factoring a federal receivable is factoring with an assignment attached, worked through in Government Invoice Factoring.
Cost. [CLIENT DATA: rate range, per 30 days.]
Bonding interaction. [CLIENT DATA: direction and magnitude.]
When it is wrong. When the money is needed before delivery. Mobilization happens before there's an invoice to sell, so factoring can't reach it.
Asset-based lending
A revolving facility sized on a borrowing base of receivables, inventory, and equipment.
Speed to funding. Slower to stand up than either structure above. Field exam and appraisal first.
What it underwrites. The asset base, which is the balance sheet by another name.
Assignment of Claims handling. Required where federal receivables sit in the borrowing base.
Cost. [CLIENT DATA: rate range.] Generally below factoring and above a bank line.
Bonding interaction. [CLIENT DATA: direction and magnitude.]
When it is wrong. When the company's assets are thin relative to the award, which is the defining condition of a growing set-aside contractor. Facility structure and advance rates are covered at AssetBasedLending.guide.
A bank line of credit
A revolving facility underwritten against your company.
Speed to funding. Ninety days to a decision is the number contractors report.
What it underwrites. The balance sheet. On a $3M balance sheet against a $10M award, the line is sized to the $3M.
Assignment of Claims handling. Not required, and most commercial banks have never executed one.
Cost. The cheapest capital on this page, by a wide margin. [CLIENT DATA: state the spread against contract financing once the rate lands.]
Bonding interaction. A drawn line consumes the same balance-sheet capacity the surety is reading. [CLIENT DATA: magnitude.]
When it is wrong. When the mobilization exceeds what the line is sized to, which is most of the time on a growing contractor. And when the answer is due before the committee meets.
When it is right. An existing line with room on it beats everything else on this page on cost. If you have one and it covers the gap, draw on it. This page has nothing better to sell you.
| Structure | Speed to funding | What it underwrites | Assignment of Claims handling | Cost | Bonding interaction |
|---|---|---|---|---|---|
| Contract financing | [CLIENT DATA] | The award | Required, executed by the provider | [CLIENT DATA] | [CLIENT DATA] |
| Invoice factoring | Fast once the invoice exists | The invoice | Required on a federal invoice | [CLIENT DATA] | [CLIENT DATA] |
| Asset-based lending | Slower to stand up | The asset base | Required on federal receivables in the base | Below factoring, above a bank line | [CLIENT DATA] |
| A bank line of credit | Ninety days to a decision | The balance sheet | Not required | The cheapest capital on this page | Consumes balance-sheet capacity |
Match the structure to your configuration
$10M award, $3M balance sheet, $2M mobilization, 90 days to performance. Contract financing. The award is the only asset large enough to underwrite and the timeline rules out the committee. Worked end to end in Mobilization Funding.
$800K held across four projects, no new award pending. Financing against work already performed, once you've established which of the four kinds of hold it is. Retainage Financing separates them.
$4M award, existing bank line with $2M undrawn, 120 days to performance. Draw on the line. It's cheaper than every structure on this page and the timeline has room. Nothing here improves on a facility you already have.
The contract is priced at a margin under [CLIENT DATA: Sanctorum margin floor, %]. No structure on this page fixes this. Financing a thin contract delivers the loss on schedule. The problem is the bid, and the answer is upstream of anything a lender does.
Read next
- Assignment of Claims: A Contractor's Step-by-Step Guide. The mechanism Criterion 3 turns on.
- When Contract Financing Is the Wrong Fit. The cases where the answer is no.
- Government Contract Financing Structure Comparison Matrix. This page as a one-page matrix.
- FactoringInsider.com. Invoice factoring mechanics and cost.
- AssetBasedLending.guide. Asset-based facility structure.
