Loan type
Financing a government contract
Winning the contract is the easy part. Funding the work before the agency pays is where small contractors run out of road.
At a glance
| The core problem | You perform first and invoice after |
|---|---|
| Main SBA route | Contract CAPLine |
| Secured on | The contract and its receivable, mostly |
| Eligibility test | Prior similar contracts completed profitably |
| Not fundable | Mark-up or profit — costs only |
| Ring-fenced | Per contract; advances cannot cross-subsidise |
A good fit when
You hold or are bidding a government contract and need working capital to perform it.
A poor fit when
You have no award yet and no history of similar work — a hoped-for contract is not collateral.
Why government work strains small contractors
Government contracts are among the most reliable receivables in existence — agencies pay. They just pay after you have performed, and the gap between mobilising and being paid has to be funded by someone.
That is a financing problem rather than a business problem, which is exactly what the SBA's Contract CAPLine exists for.
The Contract CAPLine, and its restrictions
From the SBA's rulebook, to be eligible for a Contract CAPLine you must be able to demonstrate prior completion of similar contracts profitably, the ability to bid and project costs accurately, and the capacity to finish on time and at a profit.
- Proceeds fund the costs of specific contracts, including allocable overhead and general and administrative expenses.
- Not permanent working capital, fixed assets, refinancing, or a change of ownership.
- Not a contract where significant performance has already begun.
- Not mark-up or profit — costs only.
- Advances for one contract may not fund another, and payments received on one may not repay another. Expect to account for them separately.
The other routes
| Route | When it fits |
|---|---|
| Contract CAPLine | The default for a small contractor with a track record. |
| Invoice factoring | After delivery, when the invoice exists. Government receivables factor well because the payer is sound. |
| Accounts receivable financing | Borrow against the receivable while keeping collections. |
| Line of credit | General capacity if you bid continuously and have the history to support it. |
| Surety bonding | Not financing, but frequently the actual blocker. The SBA runs a bond guarantee programme worth asking about by name. |
Before you bid something you cannot fund
- Map the cash profile: when costs land, when progress payments arrive, when final payment clears. The cash gap planner does this.
- Establish the facility before award where you can. After award the clock is running.
- Check whether progress payments are available under the contract type — they change the problem substantially.
- Confirm the bonding requirement separately.
Questions people actually ask
How do small businesses finance government contracts?
Most commonly an SBA Contract CAPLine, which funds the costs of performing specific contracts, or factoring the receivable after delivery. Government receivables are attractive to factors because the payer is reliable.
Can a Contract CAPLine pay me my profit?
No. Proceeds fund the costs of performance, including allocable overhead and G&A, but the SBA's rules exclude mark-up and profit.
Can I finance a contract I have not won yet?
Generally no. Lenders want an award, and the eligibility test for a Contract CAPLine looks at contracts you have already completed profitably. Build the facility on your track record before you need it.