Which funding products does this apply to?

Working Capital, Business Line of Credit, SBA Loan, Invoice Financing. Each has its own page listing the funders in this directory that offer it and what each one publishes about its terms.

Is this specific to construction?

It is written around how a construction business actually generates and collects cash, which is what makes its funding problem different. The mechanics transfer; the arithmetic may not.

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How a federal contract changes what you can borrow

The award itself is not collateral. The assigned payment stream is, and one clause in the contract decides whether it can be.

By Find Me Funders research desk Updated 14 September 2026 1024 words 5 min read

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

Winning a federal contract changes your borrowing in three specific ways, and none of them is the way owners expect. It does not make you creditworthy. It creates a receivable with an unusually reliable payer, it creates a cash gap that has to be funded, and it makes one particular financing structure available that was not available before.

The receivable is the asset, not the award

A signed contract is a promise of future work. A delivered invoice is a claim against the United States government. Lenders price those two things very differently, and the difference is the whole subject.

Against a claim, the relevant law is the Assignment of Claims Act. 31 U.S.C. 3727 allows a contractor to assign money due under a federal contract to a financing institution, provided the contract does not forbid assignment, the assignment covers "the entire amount not already paid", is made to only one party and may not be reassigned, and the assignee files written notice and a copy of the assignment with the contracting official or agency head, the surety on any bond, and the disbursing official.

Read that list as a checklist, because each item can kill a facility:

"The contract does not forbid an assignment." Find this clause before you bid. If assignment is prohibited, the receivable cannot be pledged and a receivable-secured facility is off the table.
"The entire amount not already paid." You cannot assign half a contract to keep a second lender happy. One contract, one assignee.
Notice to the contracting officer, the surety and the disbursing official. This is administrative, it takes time, and it is done by the assignee. Ask any prospective funder whether they have filed notices of assignment on federal contracts before. The ones that have will answer immediately.

The cash gap, priced

Under 31 U.S.C. 3903, the required payment date defaults to "30 days after a proper invoice for the amount due is received if a specific payment date is not established by contract". Agencies must also establish an accelerated payment goal of 15 days after invoice receipt for contracts with small business prime contractors, to the fullest extent permitted by law. And a defective invoice must be returned to you within 7 days with reasons — which means an invoicing error costs you a week, not a month, if you are watching for it.

Illustrative only —a 600,000 twelve-month contract billed at 50,000 a month, costing 42,000 a month to perform.

Paid at 15 days: you carry roughly 1.5 months of cost, about 63,000.
Paid at 30 days: roughly two months, 84,000.
Paid at 45 days: roughly 2.5 months, 105,000.

Carry that at an illustrative 10 percent annual cost of funds and the financing costs 6,300, 8,400 and 10,500 respectively. Against an annual gross margin on the contract of 96,000, the 30-day case consumes just under 9 percent of the margin. The 45-day case consumes nearly 11 percent. Neither is fatal. Both have to be in the bid price, and neither is in most first bids.

Size the facility to the worst case, not the promised case. The difference between the 15-day goal and a 45-day reality is 42,000 of line you either have or do not.

The structures that open up

A contract-specific line.SBA's CAPLines umbrella includes a Contract CAPLine, which SBA describes as financing the costs of a specific contract, including overhead and general and administrative expenses allocable to those contracts, revolving or non-revolving, with a maximum maturity of ten years for CAPLines other than the Builders line. The point of the structure is that it is sized and repaid against one identified contract rather than against your general cash flow.

Factoring the government receivable.Because the payer is the government, the credit question on the invoice is almost entirely about whether the invoice is proper and whether the work was accepted — not whether the customer can pay. What replaces credit risk is performance and paperwork risk, and that is what a funder will diligence: your acceptance documentation, your invoicing accuracy, your past payment history on federal work.

Bonding, which is a financing question in disguise.Many federal construction and service contracts require surety bonds. SBA's Surety Bond Guarantee programme covers bid, performance, payment and ancillary bonds, with eligible contracts up to 9 million for non-federal and up to 14 million for federal contracts as SBA states them, and a fee of 0.6 percent of the contract price for performance and payment bonds, with no fee for bid bond guarantees. Bonding capacity and borrowing capacity compete for the same balance sheet: a surety looks at your working capital and net worth, and so does your bank. Adding debt can reduce bonding capacity, which is a trade most contractors discover at the wrong moment.

The order to do this in

Read the assignment clause in the solicitation, before you bid.
Model the cash gap at 45 days, not 30. Put the carrying cost in the price.
Ask your bank whether it lends against assigned federal receivables and whether it has filed notices of assignment before. Get a named person.
Ask the contracting officer who the disbursing office is and confirm the invoicing system you must use. Rejected invoices are the most common cause of the gap stretching.
If bonding is required, talk to the surety before the bank. The surety's working capital test will constrain how much debt you can take, so find out the constraint before you borrow into it.

What to have ready and what to refuse

Have the executed contract, the award notice, the invoicing schedule, the acceptance procedure, and your last three federal invoices with proof of payment date. That package is what turns "we have a government contract" into a sized facility.

Refuse a facility that treats the award as collateral without an assignment in place; the funder is either taking an unsecured position and pricing it as secured, or has not read the contract. And refuse to sign an assignment on a contract you have not confirmed permits one.

Where this applies