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4 Ways to Finance a Government Contracts

Government contracts can be a great way of expanding a small business. Agencies at the federal, state and county levels outsource every good and service they use. If your company is involved in goods and services, there is a chance the government might need it.

A resolution passed by the Congress requires government agencies to work with small businesses. This is meant to create opportunities for small business and level the field of government contracting. Government contracts are open to all eligible small businesses. However, most companies are unable to deliver and fulfill the contracts due to financing.

Even though small businesses seek government contracts to expand their operations, the contract can create financial problems. Some government contracts can be overwhelming for some small businesses, unless they are adequately prepared. Few small businesses consider that most government payments take between thirty to sixty days. These delays can cause a significant dent in finances. Therefore, before binding for the government contracts, the cash flows in your business should be able to handle regular expenses such as paying employees and vendors. Below are some viable ways of financing government orders.

  1. Small Business Administration (SBA)

One of the best ways small businesses can finance government orders is through SBA. It was created in 1953 to provide capital, counseling, and contracts to small businesses and entrepreneurs. The agency has several financing products suited for small and midsized companies. For instance, the microloans option can reach a limit of up to fifty thousand dollars, depending on the state. The loans are ideal for startups because they are easier to get compared to the regular bank loans. On the other hand, bigger businesses can consider the CAPline loans that extend up to five million dollars. It is important to note that SBA does not provide money directly but works with banks that are willing to underwrite the loan to small businesses.

  1. Accounts Receivable/ Invoice Financing

Small businesses can finance government contracts through account receivable financing and invoice factoring programs. These types of funding allow firms to use receivables such as outstanding invoices to get finances. The financing options are advantageous to small businesses because they are flexible and easier to get, especially when government contracts are involved. Setting up the loans can take less than two weeks depending on the lender.

  1. Purchase Order Financing

Purchase order (PO) financing is a type of funding for businesses that are unable to meet purchase orders due to lack of funds. Small businesses can use a PO financing program to cover the supply cost associated with government contracts. Sometimes the program is an advanced solution and does not cover the entire amount involved. However, in some cases, the company can qualify for full financing. Unfortunately, PO financing is only suitable for wholesalers who resell products. Also, most financing institutions prefer orders that have higher profit margins.

  1. Supplier Financing

This type of funding is suitable for manufacturing companies and distributors. Small businesses with government purchase orders can take advantage of this financing to pay their suppliers. Unlike other financing options, supplier financing can help to expand the financial capabilities of a company. Also, it is compatible with other financing solutions such as account receivable.

There are many lending institutions such as pool loan companies that provide contract financing to small businesses. Government contracts are guaranteed even though they are not paid immediately. The lending institutions offer advance money to firms that are in contract with the government for day-to-day operations before payments are initiated. Unlike conventional financing, contract financing is designed to help businesses that require advance funds on ongoing contracted work.

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Should You Invest In Contract Labor Companies?

Having a project completed sometimes requires a hard look at the type of labor that may be necessary to get the work done in the first place. Many people do not stop to take enough time to figure out exactly how they should hire labor to get it done. Some simply go to contract labor companies without a second thought and others just use the employees that they already have. So, which method is really better? We want to take a look at that today.

Taking A Look At The Project

Imagine for a moment that you are having a pool built for your business or for your private residence. The first thing that you might do is look at pool loan companies. They can provide the financing you need for this project. However, before you go to them you are going to need to have a plan in place so that you can present to them your ideas for how you intend to get this project done.

One of the steps you must clearly take is to hire a company or hire employees who can get the labor of building a pool up and out of the way for you. They are going to come at a cost and you should carefully consider what that cost is going to be.

The Pro Side

Lets see what may push you towards going with contractors to get your project done right.

1) Flexibility- There is no doubt that contractors make it easier to get just a very specific task accomplished. You do not have to worry about paying benefits or overtime or anything of that nature when you go with contractors. You just give them the specifics of what you want to have done with your project and they go to work making that happen. It is so easy that you may wish you had started by doing it this way in the first place.

2) Cost Savings- You can save a bundle when it comes to your overall costs with contractors in comparison to regular employees. The amount that a contracting service bids to do your project could come in as way less expensive than having your regular crew do the work.

3) Easy To Find Talent- Those who work as contractors tend to do the same kind of jobs over and over. They are experienced in providing high-quality service to anyone who comes to them with a project. You may be able to avoid some of the costs of training new employees when you go with contractors.

What May Hold You Back

It is not all rosy for hiring contractors. Let’s take a look at some of your potential hangups with doing it this way.

1) Fear Of Disloyalty- Contractors do not really know you as a person. They may not feel that they have to put their whole heart into a project. Additionally, they may feel more comfortable doing something such as stealing from you. That is always a danger when hiring people you don’t really know.

2) Less Control- Contractors are more free to set their own rules and timelines. You can have a pretty tight grip on your own employees but may not experience that with contractors.

Go With What Makes You Comfortable

There are a lot of factors that you could put on the pros and cons ledger before making a decision on this one. The most important thing at the end of the day is to go with a decision that makes you comfortable. If having your own employees do it is the only way you can feel that way, then go with them. It is just about getting your project done right the first time and exactly the way that you want it done.

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