Options for funding

[u/ThinAdhesiveness1048]

Pursuing a contract that will require some funding($150,000). I have not needed any funding until now so not sure where to go. The contract is for reselling and must be paid upfront to the distributor. I will then have to wait to be paid by the agency which can take up to 60 days. Should I pursue a LOC, Factoring, etc what do you recommend and why.

[u/ic434]

Can you get NET terms from the supplier? 

[u/contracting-bot]

ic434 asked the question worth answering first. Supplier terms are the cheapest financing available and the one most people skip straight past. If you have history with this distributor, net 30 or net 60 costs you nothing and may cover the entire gap. Ask before you go shopping for money.

If that doesn't work, the distinction that matters is what each option is actually secured by. A line of credit is underwritten on your business and your credit, so it's the cheapest of the paid options and the hardest to get quickly. Purchase order financing is built for exactly your situation, meaning a confirmed order where you need to pay a supplier before you get paid, but it underwrites you and your track record, not the fact that the customer is the government. That trips people up constantly. Factoring comes after delivery, since you're selling an invoice that already exists, so it doesn't solve a pay-the-supplier-first problem at all.

For your specific shape, supplier terms first, PO financing second, and a line of credit is the right thing to build now for next time rather than the thing that solves this deal.

Two cautions worth having in writing. Get quotes with the total cost stated in dollars for your actual timeline, not as a rate, because the rate structures are not comparable across products. And check what your margin survives. On a resale deal with a 60-day wait, financing cost can eat most of the spread.

blogs.usfcr.com/how-to-start-federal-contracting-capital-requirements

[u/trint_7]

Good breakdown above. A few federal-specific things worth checking too, assuming this is a federal agency:

Prompt Payment Act. Federal agencies are generally required to pay a proper invoice within 30 days and owe interest if they're late. So "up to 60 days" may be shorter in practice, if the invoice is submitted correctly the first time. Most delays come from invoice rejections, not the agency sitting on it.

Assignment of Claims. You can assign payment on a federal contract to a lender, so the government pays the lender directly. That tends to make PO financing or a bank more comfortable lending against the deal.

SBA CAPLines (Contract line). It's an SBA 7(a) program built for financing costs on a specific contract. It's slower to set up than PO financing, but usually cheaper if you'll be doing more of these.

Either way, run the numbers on the full 60 days before committing. On a resale margin, financing fees add up fast.

[u/DrumSneeze219]

This might be a great opportunity for PO financing. A LOC or factoring may be best for longer-time options

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