The short answer: how government contractors get funded
Government contractors get funded against the strength of their contracts and receivables, not despite slow payment. The core problem is timing: even under the Prompt Payment Act's 30-day target, the average actual payment on a net-30 local-government invoice runs about 47 days (Institute of Finance and Management, 2023), and federal cycles often stretch to 60 or 90. Mobilizing a new award (hiring, materials, and subcontractors) commonly costs 10 to 25 percent of the contract value before a single invoice is even submitted.
Three products bridge that gap. Receivables financing and government-invoice factoring advance most of an invoice's value now instead of in 60 days, and price cheaper than commercial factoring because a valid, undisputed federal invoice is about as safe as receivables get. Purchase-order and contract financing fund the labor and materials to perform an awarded contract. And a fast revenue-based advance can bridge a mobilization deadline that arrives faster than a receivables facility can be set up. Because government receivables are such strong collateral, contractors often qualify for cheaper structures than they expect: the mistake is defaulting to the fastest, most expensive product when a receivables line would cost a fraction as much.
The working-capital problem unique to government contractors
Government contracting has a cash-flow problem that has almost nothing to do with profitability and everything to do with timing. You win a contract, you mobilize (hiring, buying materials, paying subcontractors, standing up the work), and then you wait. Federal agencies target payment within 30 days under the Prompt Payment Act, but in practice the cycle from invoice to deposit often stretches to 45, 60, or 90 days once you account for approvals, contracting-officer review, and the realities of large-organization accounts payable. State and municipal payers can be slower still.
That gap is the entire challenge. Your payroll runs every two weeks whether or not the agency has paid; your material suppliers and subcontractors expect their money on their terms, not the government's. A profitable contractor can run out of cash simply by winning, because growth means more simultaneous contracts, and every new contract ties up more working capital in the payment gap before it produces a dollar of collected revenue.
The silver lining is that government receivables are among the highest-quality collateral in business finance. The payer is the U.S. government or a state agency, creditworthy almost by definition, so lenders that specialize in this space will advance against those receivables and contracts on terms that reflect the low default risk. The financing challenge for a government contractor is less about whether capital is available and more about choosing the structure that bridges the gap at the lowest cost.
Which funding products fit a government contractor
Government contractors have a set of financing tools built specifically for the payment-gap problem, plus the general-purpose products every business can use.
The workhorse is receivables financing, factoring or an accounts-receivable line against your government invoices. Because the payer is a government agency, these receivables are strong collateral, and the structure advances you most of the invoice value now instead of in 60 days, with the balance (less a fee) when the agency pays. Our comparison of receivables financing and advances walks through how factoring is priced.
When the challenge is fulfilling a specific awarded contract you don't yet have the cash to perform, purchase-order and contract financing, also arranged through receivables and asset-based lending, funds the labor and materials to deliver, repaid from the contract proceeds. For ongoing, unpredictable working-capital needs across multiple contracts, a business line of credit provides flexible capital you draw on as needed.
For larger, longer-term needs (capacity expansion, acquiring a competitor's contract vehicle, or major equipment), a term loan or an SBA loan offers the lowest cost when you can wait on underwriting. And when a mobilization deadline arrives faster than any of those can move, a revenue-based advance funds in 24 to 48 hours as a bridge, at a higher cost.
Typical uses of funds for government contractors
The financing needs we see most often from government contractors:
• Contract mobilization. Standing up a newly awarded contract (hiring, onboarding, buying materials, and paying subcontractors) in the weeks before the first invoice is even submitted, let alone paid.
• Payroll through the payment gap. Covering two or three payroll cycles while a submitted invoice works its way through the agency's approval and payment process.
• Materials and subcontractor payments. Paying suppliers and subs on their terms while you wait on the government's, especially on materials-heavy or construction contracts.
• Bridging a slow-paying agency. Turning a 60- or 90-day receivable into working capital today so a single slow payer doesn't stall the rest of your operation.
• Scaling for a larger award. Carrying the additional working capital that a bigger contract (or several concurrent contracts) ties up before any of them pay out.
• Bonding-adjacent working capital. Freeing up cash so it isn't stranded, supporting your ability to take on bonded work. (Financing is not a surety bond, but strong working capital strengthens the overall picture.)
How government contractors typically qualify
Government contractors qualify on a combination of business revenue and the quality of the underlying contracts and receivables, and the government-backed nature of those receivables works in your favor.
For receivables financing, the central questions are the creditworthiness of the payer (a government agency scores well) and the validity of the invoices, more than your personal credit. For a revenue-based advance, underwriting is revenue-first: roughly 6 or more months in business, $20,000 or more in monthly business deposits, an active business checking account, no current default with another funder, and owner credit generally in the 600 to 680 range.
For a bank line of credit, a term loan, or an SBA loan, expect stronger requirements: commonly 650-plus credit for a line, 680-plus and two or more years in business for SBA, along with financial statements and tax returns. Government contractors have one additional asset many overlook: the SBA and its lending partners run programs specifically aimed at small-business federal contractors, and a broker who knows that landscape can point you toward funders that treat your contract backlog as the strength it is rather than an unknown.
How fast funding moves, and what to prepare
Speed varies widely by product, and government-contract financing has one nuance worth knowing: the first receivables facility takes longer to set up, but subsequent draws are fast.
A revenue-based advance is quickest overall, a decision in 4 to 24 hours and funding in 24 to 48. A receivables or factoring facility usually takes a few days to a couple of weeks to establish for the first invoice (the funder verifies the contract and payer), then funds new invoices within a day or two once the relationship is in place. A line of credit ranges from days to weeks; SBA and term loans run 30 to 90 days.
To move quickly, assemble: the last 6 to 12 months of business bank statements, a photo ID, a voided business check, and your basic business details. For receivables or contract financing, add the contract or award documents, the invoices you want to finance, and details on the paying agency. For an SBA or term loan, expect two years of business and personal tax returns and current financials. Clean, complete documentation is the single biggest factor you control on speed. Our guide on preparing your business for fast funding covers exactly what underwriters review.
Choosing the right product for your contract
The right structure follows from the shape of your need. If the problem is a specific unpaid government invoice, receivables financing is the direct solution. If it's an awarded contract you can't yet afford to perform, purchase-order or contract financing fits. If it's ongoing, unpredictable working capital across several contracts, a line of credit is built for that. If it's a large, long-term investment, a term or SBA loan costs the least when you can wait. And if a mobilization deadline is here now and no slower product can meet it, a fast advance bridges the gap.
Match the financing term to the payback horizon (a 60-day receivable should be bridged with short-term capital, not a multi-year loan) and avoid stacking advances, which compounds the daily-repayment drain. Because government receivables are strong collateral, contractors often qualify for cheaper receivables-based structures than they expect; the mistake is defaulting to the fastest, most expensive product when a receivables line would cost a fraction as much.
Commera advises across receivables and contract financing, asset-based lending, lines of credit, term and SBA loans, and revenue-based advances. Our pre-qualification is a short, no-obligation step with no hard credit pull. Tell us about your contracts and your timeline, and we'll match you to the structure that bridges the payment gap at the lowest cost.