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.
- Secured on invoices
How it works
Federal contracts can include their own financing, under Part 32 of the Federal Acquisition Regulation (FAR). The rules tell contracting officers to give special attention to the financing needs of small businesses.
- Progress payments: the agency pays you a share of the costs you incur as you work, before delivery. The customary rate is 85% of your costs for small businesses and 80% for others. The payments are recovered (liquidated) from what you are paid for delivered items.
- Performance-based payments: the agency pays you when you reach set milestones or measurable results in the contract, up to 90% of the contract price. The FAR calls these the preferred method when practical and you agree.
- Assignment of claims: under the Assignment of Claims Act, you can assign the money due under a contract of $1,000 or more to a bank or other financing institution, which then lends against it. The lender must send written notice to the contracting officer, any surety and the paying office. The contract must not prohibit it.
When an agency offers financing: usually when a small business will not be able to bill for the first delivery for about four months or more, and its spending before then has a significant impact on its working capital, or when it shows actual financial need or that private financing is not available. For a small business, the contract must be above the simplified acquisition threshold; purchases under the simplified procedures usually get no financing. The FAR asks contracting officers to look first at private financing on reasonable terms.
What it costs: there is no separate charge when financing is in the contract from the start, but the FAR expects its value to show in a lower price or better terms for the government. Adding financing after award needs new consideration from you.
Getting paid on time: agencies other than the Department of Defense have a goal of paying small business contractors within 15 days of a proper invoice, and the Department of Defense has the same goal, under the accelerated payment rules. For late payment interest, see late fees and Prompt Payment Act interest.
The FAR is being rewritten part by part in 2026 (the "Revolutionary FAR Overhaul"). The model text for Part 32 that agencies can adopt keeps these figures; check the clauses in your own contract.
Upsides and downsides
Upsides
- No interest and no separate fee
- Small businesses get a higher customary progress payment rate (85%)
- The right to assign payments makes it easier to borrow from a bank against the contract
Downsides
- Only for federal contracts, and only when the contract includes it
- Its value is expected to come off your price
- Progress payments need cost accounting the agency can rely on
Risks
- The agency can reduce or suspend payments if you do not meet the contract's terms
- Financing payments must be repaid if the contract is ended for default
What it costs
- How it is priced
- No separate charge; the value of the financing is expected to show in a lower contract price or better terms for the government
- Costs that are easy to miss
- A lower price on your bid, to reflect the financing you receive
- Accounting and reporting for progress payments, which the agency can suspend or reduce if you fall short
Up to 85% of costs incurred (small businesses) for progress payments, or up to 90% of the contract price for performance-based payments.
Paid late by a federal agency? Prompt Payment Act interest: work out the interest it owes
Does it fit?
Could fit when
- You have a contract with a federal agency
Unlikely to fit when
- You do not have a contract with a federal agency
Who can use it
- Business types: Sole proprietorship, Partnership, LLC, S corporation, C corporation, Benefit corporation, Cooperative, Nonprofit
- Open to businesses with no sales yet
- A federal contract that includes a contract financing clause, or an agency willing to add one
- For a small business, a contract above the simplified acquisition threshold
- Accounting good enough to track the costs the payments are based on
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all supplier and buyer-led finance
0%
0 of 3 ticked
- Financing in the solicitation
- Cost records
- SAM.gov registration
Regulation and protections
Regulators: Federal Acquisition Regulatory Council (FAR Council); U.S. Department of the Treasury.
Who runs it: Federal program.
The Federal Acquisition Regulation sets when contracting officers provide financing, the customary rates and the conditions for assignment of claims. The Prompt Payment Act and its rules set when you must be paid and the interest due if you are paid late.
Types of provider: Federal agencies, through their contracts; Banks and other financing institutions that lend against assigned contract payments.
Also consider
What has changed
No changes since this page was published. It was last checked against its sources on October 20, 2026.
Sources
- 48 CFR 32.104 (FAR): providing contract financing · checked October 20, 2026
- 48 CFR 32.501-1 (FAR): customary progress payment rates · checked October 20, 2026
- 48 CFR 32.1001 and 32.1004 (FAR): performance-based payments, policy and procedures · checked October 20, 2026
- 48 CFR 32.802 (FAR): assignment of claims, conditions · checked October 20, 2026
- 48 CFR 32.005 (FAR): consideration for contract financing · checked October 20, 2026
- 48 CFR 32.009-1 (FAR): accelerated payments to small business contractors · checked October 20, 2026
- Acquisition.gov: FAR Overhaul, Part 32 (model deviation text) · checked October 20, 2026
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