I sell to the federal government, or want to. How do I cover the costs before I'm paid?
Contract financing, prompt payment rules and the loans that lend against a government contract, cheapest first.
Winning federal work takes cash before it brings any in. The SBA warns that it can take a long time and a lot of money to win a first contract: some businesses spend between $80,000 and $130,000 to earn their first one, and it can take up to two years to see a return. Before you can bid, you register in the System for Award Management (SAM.gov), which gives your business its Unique Entity Identifier (UEI).
Once you hold a contract, the Federal Acquisition Regulation (FAR) gives you some of the cheapest money there is:
- Contract financing: the contracting officer must give special attention to a small business's financing needs. Progress payments or performance-based payments can be written into the contract when you cannot bill for the first delivery for a long time (normally four months or more for a small business) and the costs before then weigh on your working capital.
- Paying on time: an invoice is normally due on the 30th day after the billing office receives a proper invoice, or after the government accepts the work if that is later. Agencies aim to pay small businesses within 15 days. If the government pays late, it adds interest under the Prompt Payment Act without you having to ask.
- Borrowing against the contract: under the Assignment of Claims Act, you can assign the payments under a contract of $1,000 or more to a bank or other financing institution, so it can lend against them, unless the contract forbids it.
6 routes to look at, cheapest first
Compare the first 4 side by side- L0
Free or nearly free
Little or no cash cost, though most take time and admin. Some bring money in, and a few have small fees.- Own cash and no-cost
Late fees and Prompt Payment Act interest
Getting paid what you are owed, sooner: interest that federal agencies must add when they pay you late, and late fees you write into your contracts with private customers. It costs nothing to claim, but it only works if your paperwork and terms are in order.
DaysNot a raise - Supplier and buyer-led finance
Federal contract financing
Payments a federal agency makes to its contractor before delivery, as costs are incurred or milestones are met, plus the right to assign contract payments to a bank as security. No separate charge, but it has to be in the contract, and it is meant to show up in a lower price.
Weeks
- Own cash and no-cost
- L2
Mainstream secured debt
Standard borrowing from banks, credit unions and mainstream lenders, often secured on assets or backed by a personal guarantee. - L3
Specialist secured debt
Borrowing secured on specific assets such as invoices or inventory, with more fees and conditions than mainstream debt.- Asset-based and specialist lending
Accounts receivable financing
A loan or line of credit secured on your unpaid invoices. The invoices stay yours, you usually keep collecting from your customers, and how much you can borrow rises and falls with what they owe you.
Weeks - Asset-based and specialist lending
Purchase order and contract financing
Money to fill a specific order or contract you have won but cannot afford to carry out, repaid when your customer pays. The SBA backs one version through banks; specialist finance companies offer others on their own terms.
WeeksUp to $5mPersonal guarantee likely - Asset-based and specialist lending
Spot factoring (single invoices)
Selling one unpaid invoice, or a few, to a factor for cash now, without signing up to sell it all your invoices. Useful for an occasional large invoice, but each deal is priced on its own.
Days
- Asset-based and specialist lending
Worth knowing
- Ask about contract financing when you bid. The contracting officer decides whether to put it in the solicitation, and the FAR tells them to include it when in reasonable doubt.
- Keep your banking details in SAM.gov up to date. If they are wrong, late payment interest does not start until seven days after the agency gets the right details.
- Before you assign a contract's payments to a lender, check that the contract does not forbid it. The lender must notify the contracting officer, any surety and the paying office.
Sources
- SBA: Basic requirements for government contracting (UEI, SAM registration, cost of a first contract) · checked October 20, 2026
- 48 CFR 4.1102 (FAR): registration in SAM · checked October 20, 2026
- 48 CFR 32.104 (FAR): providing contract financing · checked October 20, 2026
- 48 CFR 32.904 (FAR): determining payment due dates · checked October 20, 2026
- 48 CFR 32.009-1 (FAR): accelerated payments to small business contractors · checked October 20, 2026
- 5 CFR 1315.10: late payment interest penalties · checked October 20, 2026
- 48 CFR 32.802 (FAR): assignment of claims, conditions · checked October 20, 2026
Facts about each route are sourced on its own page.