A major expense for IT companies is personnel. Many small businesses don’t have sufficient working capital to cover the payroll or contractor expenses. These expenses are due typically weekly or every other week while payment of invoices doesn’t happen for at least a month, many times much longer. The result is that the size of the contracts and the number of contracts that an IT provider can take on is limited.
Government contracts are very popular these days because of the economy. Government contracts can be large and they can span several months. Because of this, the cash flow required can be large and small businesses are limited or totally locked out of pursuing other contract opportunities. In many cases, a small business IT provider will subcontract to a larger prime government contractor such as Raytheon, Lockheed Martin, or Boeing. In this case, the small business is still limited because their cash flow can be tied up by both the government and the prime contractor.
Traditional sources of funding just aren’t responsive these days to the needs of small businesses. The requirements to get funding have gone up tremendously and many small businesses are locked out from this source of funding. Even mature small businesses find that their working capital is tied up in other projects and they have to turn down business that they could do otherwise.
There are readily available sources of financing for small IT providers on government contracts. Government contract factoring can be the financing solution that is the difference between having to turn down a contract and their pursuing a profitable opportunity. Government contract factoring is factoring focused on contracts at any level of government. Most levels of government have processes in place that make it easy for alternative financing firms to provide lines of credit for small businesses providing products or services to the government entity. These are based on the size of the billing to the government so the line of credit is uncapped and will work with any size project no matter how large it is.