Part 3 of 3 — You Won the Contract. Now What If You Have No Money? Funding Workarounds for Small Businesses With No Capital, No Credit, and No Time

This is the post nobody writes. There are thousands of articles about how to register on SAM.gov, how to find bids, how to write a proposal, and how to win a contract. There are very few about what to do the morning after the award notice arrives.

You won. You celebrated. Then you sat down and read the payment terms. Net 30. Net 60. Net 90. And you realized you have to fund payroll, supplies, equipment, overhead, and compliance for two or three months before the first invoice gets paid.

First, Understand the Cash Flow Gap

The government's payment terms are not the same as your payment terms. Federal contracts are governed by the Prompt Payment Act, generally requiring payment within 30 days. In practice, prime contractors paying subcontractors can stretch that to 45, 60, or 90 days. Your costs do not wait. Payroll is biweekly. Supplier invoices are Net 15 or Net 30. That means your first dollar of revenue from a new contract could be 60 to 120 days after the contract start date. The strategies below are how you fund that gap.

Strategy One — Invoice Factoring and Government Contract Financing

Invoice factoring is the most common workaround for government contracts with long payment terms. A factoring company buys your invoice at a discount — typically 1.5% to 5% of the invoice value — and gives you the cash immediately. For a bootstrapper with poor credit, factoring is often available even when traditional financing is not, because the factor is underwriting the government's credit, not yours.

Companies that specialize in government receivables include altLINE, Riviera Finance, TCI Business Capital, and Charter Capital. Key questions: do they handle Assignment of Claims filings, what is the advance rate (typically 80%–95%), what is the factor fee, and what is the recourse situation.

Strategy Two — SBA Programs Built for This Exact Problem

The SBA has multiple programs designed specifically for the government contractor cash flow gap. The SBA 7(a) Contract CAPLine is a revolving line of credit built around the cash flow needs of a single contract or series of contracts — one of the most underused tools available to government contractors. The SBA Microloan program lends up to $50,000 with more flexible credit requirements. The SBA 8(a) program gives access to sole-source contracts with negotiable payment terms. The SBA Surety Bond Guarantee Program helps small businesses get bonded when their credit will not qualify them through the standard market.

In Maryland specifically, the Maryland Small Business Development Financing Authority (MSBDFA) includes a Contract Financing Program designed for contract-based working capital — one of the most underused resources in the state.

Strategy Three — Mobilization Funding and Contract Negotiation

Some agencies will pay mobilization costs up front for new contracts. Some contracts allow progress payments at agreed-upon milestones. Contract terms are not always fixed — especially in negotiated contracts, there is room to ask. The worst outcome is that the contracting officer says no.

Strategy Four — Supplier Net Terms and Strategic Vendor Relationships

Many wholesale suppliers will extend Net 30 or Net 60 terms to businesses with a signed government contract, even when the business has weak personal credit. The signed contract is the collateral. Bring it to the supplier meeting. Show the contract. Ask for terms that align with your government payment cycle.

Strategy Five — Teaming and Subcontracting as a Cash Flow Strategy

If your credit is poor and your cash is thin, the fastest path to government work may be as a subcontractor under a prime that has the credit, the bonding capacity, and the working capital to carry the contract. A Mentor-Protégé Agreement under the SBA Mentor-Protégé Program is one of the strongest vehicles for this — it allows a large mentor company to support a small protégé with financial, technical, and management assistance.

Strategy Six — The Bootstrapping-With-Poor-Credit Playbook

If you are bootstrapping, your credit is poor, and you cannot get traditional financing, here is the honest playbook:

• Start at the smallest level of government you can. City and county contracts under the small procurement threshold typically do not require bonding and pay faster.
• Pursue micro-purchases first. The federal micro-purchase threshold (currently $10,000) does not require competitive bidding.
• Use grants where you can. The Amber Grant for Women, TEDCO's Maryland programs, and federal grants for women-owned, minority-owned, and veteran-owned businesses are real money that does not have to be paid back.
• Use Community Development Financial Institutions (CDFIs). In Maryland: the Latino Economic Development Center, Maryland Capital Enterprises, FSC First, and Neighborhood Development Company all lend to small businesses with flexible credit requirements.
• Repair your credit in parallel. Within 12–18 months of disciplined work, your credit picture will look different.
• Stack small wins. Three city contracts at $15,000 each is $45,000 of past performance and three references. That stack is what gets you to the county, then the state, then the federal level.

Closing the Series

The small businesses that win in government contracting are not the ones with the most polished proposals. They are the ones with the most complete operations behind the bid — the plan, the backup plan, the financing, the team, the suppliers, and the relationships. All of it in place before the contract is signed.

Government contracting is one of the most reliable paths a small business can take to long-term, sustainable growth. The plan is what tells the difference.

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This is Part 3 of a three-part series on small business government contracting. Part 1 covered how to build a business plan at the city, county, state, and federal levels. Part 2 covered backup planning for when contracts get delayed or you cannot deliver.