Springing up like daffodils in April is a glut of finance companies purporting to be “best-in-class” at financing government contractors. Most often these companies provide working capital financing to help execute on contracts. Service providers rarely need term loans unless they are making an acquisition.
Here are five “must haves” for any finance company that stakes claim to “best-in-class.”
1. All-in cost less than standard credit card rate. Some lenders charge well over 20% effective annual interest rate. Many go even higher – up to 40% in some cases. Often these companies obscure the true cost. Take some time to analyze the fees and have your accountant or financial advisor help if necessary.
2. No personal guarantee or validity guarantee. Your customer – the US Government – has perfect credit. There is simply no reason for you to tie up your personal assets, liquidity, home, etc.
3. No termination fee. As your business grows, you may get offers from other financing sources including commercial banks. You need to be able to move. Sadly, many financial companies require hefty termination fees to let you out of a bad deal and into a better one. Such handcuffs – really just a shakedown – are unfortunate.
4. Specialists in GovCon. You know how unique and specialized government contracting is. Make sure your financial partner is equally well-versed and experienced in the industry. As a rule of thumb, make sure that at least 75% of your financing source’s customers are GovCons; that they have provided commitment letters for bid submissions; and that they can increase your facility, without requiring additional underwriting, as you win new contracts.
5. Profitable. Nothing is worse than having your source of working capital struggle financially. In the extreme, they may not be able to fund when you need it. Making sure non-bank lenders are profitable is a challenge as most are private. Ask them to verify that they make a profit. They can fib but if something goes wrong you have their misrepresentation on record. Some companies, especially the internet lenders, are public and you can see their filings. And some are scary.
To paraphrase Charles Dickens “It is the best of times, it is the worst of times.” There have never been so many non-bank financing options. There also have never been so many whose claim, if honest, would be “worst-in-class.” Be careful. Be very, very careful.
For more information on Republic Capital Access and what they can do for your business, you can visit them on their website HERE. In addition more information about Govmates, a teaming partner platform for government contractors, can be found HERE.
Author: Katie Bilek, Sr. VP Republic Capital Access