Contract Loan Program: Advantages
Seeking a guaranteed contract loan through a private institution is an option for businesses who need short-term financing in order to achieve a government contract. These loans are generally extended to small businesses that may not have a fair chance at the contract without the financing. In some cases, the loans are guaranteed through the Small Business Administration in order to encourage the participation of small businesses in government contracts. Contract loans can provide a business owner necessary financing to work with the nation’s largest buyer, the government, and many other advantages.
Secure Long-Term Contracts
The single biggest advantage to obtaining a contract loan is the ability to secure a long-term contract with a large, well-funded purchaser. Government contracts are typically extended agreements due to the amount of time it takes most government programs to come to fruition. Very few things are handled on the short-term with federal programs. This means your business will be able to secure a definite profit for years to come, allowing you to expand. You will have one certain income stream to base your expansion on. You can seek business expansion loans based on your increased financial status. Furthermore, once you have obtained the government’s seal of approval, you will have new opportunities for profit in the future.
When you seek a loan through one of the federal loan programs, you will need to meet more stringent criteria. However, if you qualify, you will get a much better deal on the financing. Because the loan is guaranteed by the federal government, the lender is assuming very little risk in extending you the financing. Banks and lenders charge less in interest rates when they are assuming less risk. These loans will cost you less over time, and they may have more favorable loan terms as well. If you were to seek the same amount of financing without a government guarantee, you would be subject to much higher interest rates.
Short-Term Financing Addresses Immediate Needs
Short-term loans are necessary for many small businesses to push through a project. These business expansion loans allow smaller businesses to compete with huge, multi-national corporations that pull on publicly-traded stock to increase financing when needed. Without this option, it is difficult for a small business to gain the immediate funds necessary to pursue a new business endeavor. A government contract typically requires a high amount of investment to develop the product and fabricate any necessary materials. Without this, a business may not even be allowed to apply. Furthermore, the government may also turn down a contract with a small business if it does not appear to have the funds to carry out the work. Short-term financing with a through the contract loan program can get a small business the resources of a much larger corporation.