Winning a government contract can be a game-changer for your business. But fulfilling that contract often requires upfront costs—paying suppliers, hiring staff, buying materials—well before your government client pays you. That’s where government contract financing comes in.
This type of financing helps businesses bridge the cash flow gap between performing the work and getting paid by the government. Here's everything you need to know to use it to your advantage.
Government contract financing is a short-term funding solution that gives businesses the working capital needed to fulfill contracts awarded by federal, state, or local agencies. It allows you to:
Pay for labor, materials, and production
Manage payroll
Cover operational costs
Avoid delaying or under-delivering on contract obligations
This funding is especially important because government payments often come on net-30, net-60, or even net-90 terms—meaning you might wait months to get paid.
This type of financing is ideal for:
Small businesses awarded their first government contract
Construction firms bidding on public projects
IT service providers hired by government agencies
Defense contractors and suppliers
Minority- and veteran-owned businesses working with local or federal agencies
If you've won a contract but don't have the upfront capital to deliver, financing is often the safest way to bridge the gap without turning down business.
Here’s a simplified overview of how government contract financing typically works:
You win a contract with a government agency
You apply for financing from a lender experienced with government work
The lender evaluates the contract, not just your credit history
You receive a line of credit or advance based on the contract’s value
You fulfill the contract and invoice the government
The government pays the invoice, and you repay the lender
This process allows you to deliver high-quality results without draining your operating capital.
1. Contract Line of Credit
A flexible funding option that lets you draw money as needed up to a certain limit.
Ideal for ongoing contracts with fluctuating costs
Interest charged only on funds used
Replenishes as you receive payments
2. Invoice (Accounts Receivable) Financing
Sell your unpaid government invoices to a lender in exchange for immediate cash—usually 80–90% of the invoice value upfront.
Fast approval
Great for businesses that can’t wait 30–90 days for payment
The remaining balance (minus fees) is paid when the government pays the invoice
3. Purchase Order (PO) Financing
If your contract involves reselling goods or fulfilling product orders, PO financing can cover supplier costs until you get paid.
Funds are sent directly to your suppliers
Often used in manufacturing or wholesale contracts
Repayment happens once the goods are delivered and paid for
4. SBA CAPLines Program
The SBA offers a specific product called “Contract CAPLine” for small businesses with government contracts.
Up to $5 million in funding
10-year term
Funds are specifically tied to contract performance
Confirm your award with a signed contract
Choose a lender experienced in government contracts
Gather financials: tax returns, AR aging, business plan
Submit the contract and invoice schedule
Get approved based on the contract’s strength
Draw funds as needed to cover expenses
Fulfill the contract and repay when invoices are paid
Improved cash flow: Avoid the strain of delayed government payments
Project confidence: Take on larger contracts without risking liquidity
Business growth: Scale with government demand, not your bank balance
High approval rates: Based on contract strength, not just credit score
No dilution: Unlike venture capital, financing doesn’t give up ownership
A veteran-owned logistics company in Texas secured a $250,000 Department of Defense contract. But with limited reserves, they used invoice financing to cover transportation and staffing. The lender advanced 90% of the invoice value, allowing them to fulfill the contract on time. Within 60 days, the government paid in full—and the business had earned both a profit and a reputation for reliability.
Waiting too long to apply: Get financing lined up as soon as your contract is awarded
Choosing a lender unfamiliar with government work: Delays and misunderstandings can cost you
Not understanding repayment terms: Always read the fine print
Poor recordkeeping: Government contracts require tight documentation—your lender will need it too
Over-relying on one funding source: Have backup financing or lines of credit if contract needs shift
SBA CAPLines Overview
SAM.gov – Official source for government contract opportunities
GovConWire – Government contracting news and analysis
FedBizOpps (now in SAM) – Find federal contracts
Department of Defense Small Business Office – Support and contracting guidance
Winning a government contract is an opportunity to grow your business, build credibility, and boost revenue. But growth should never come at the cost of operational strain. Government contract financing gives you the cash flow and confidence to deliver on your contract, impress your agency partners, and unlock bigger opportunities down the line.