The unique cash flow and capital needs of a government contractor are complex and subject to ever changing conditions. In the age of FinTech, there is no shortage of ways to obtain fast access to capital. And while they may alleviate short term needs, all too often we (business lenders) find that business owners - government contractors in particular - find themselves trapped in the wrong type of capital with potentially long-lasting ramifications.
Case in point:
John won a large government contract that had to be staffed immediately, so he took out short term loan from an online lender to cover payroll. Three months later John was awarded another contract and had to do the same thing. Now it’s 6 months later and the daily loan payments are destroying his cash flow. John has several more contracts pending. Rather than be excited at the prospect of winning them, he is worrying about how he’d find the cash to staff them.
Every day we help government contractors like John refinance or completely restructure their business loans into something better suited for their growing needs. In many cases we find that if the government contractor had researched their potential lender beforehand it could have saved them a lot of headache, time, and of course, money.
Here are 3 key things government contractors should look for in any potential business lender:
#1 A Local Relationship with Local Connections
Every city is unique, and the Northern Virginia / DC Metro area is no exception. High cost of living, commuting costs, commercial lease costs… these things can all negatively impact loan requests to an underwriter who lacks local knowledge.
Local relationships have another key benefit - local connections. Over the years I have been honored to help connect some of our great clients - many of whom are fellow members of the Tower Club of Tysons with me - with investors, financial advisors, CPAs and other executives in an effort to help their businesses continue to grow and thrive.
#2 A Business Lender with a Depth of Expertise
B/L, BAC, BDO, CEA, R&D, RD&D, SADBUS, CWHSSA… government contracting has more acronyms than my teenage daughter has snaps on SnapChat (and that’s saying something). Government contractors need a lender who speaks their unique language.
We see this issue a lot when helping government contractors get out of an ill-suited short term loan. Many FinTech companies only review a business’ bank statements to determine the size of a loan approval. This basic cash flow analysis can work great for a business like a restaurant where the daily ins and outs paint a relatively accurate picture of the business performance month over month.
Take that same approach with a government contractor, however, and problems can quickly develop. Those bank statements won’t take contract end dates into account making it all to easy to get approved for a loan amount with a payment that may work right now, but will spell disaster in 3 months.
Your business lender should be asking you for a list of your current and pending contracts, not just your financial statements. If they aren’t, they could be setting you up for a capital mismatch.
#3 A One-Stop Shop
There’s an old saying that, to a hammer, everything looks like a nail. Most lenders offer one type of loan and spend the majority of their time trying to convince you that their one product is the answer to all your needs. Banks tell you all you need is a line of credit, FinTech tells you all you need is immediate short-term cash... the list goes on.
We’ve found that the right solution is often found in a combination of loan types. Our clients like that we have the flexibility as both a direct lender with our own private non-bank fund and a marketplace with carefully screened partner lenders in various areas of expertise. First and foremost we work with clients to identify the right capital need - taking into account the ‘big picture’ of course - then we help them execute. Like tools in a tool chest, there are literally dozens of types of loans for businesses of all sizes. Any business lender you work with should be helping you find the right tool for your unique needs, not just talking about how great their own hammer is.
At One Degree we talk a lot about finding the Right Capital at the Right Time. It’s more than a slogan, it’s how we truly approach each and every client’s unique situation. For government contractors in rapid-growth mode, this is critical.