INQUIRY: I attended the 2-day cost seminar about 6 months ago. I want to join your monthly service.
Customer has come to our place and performed an audit - I think we did GREAT!
Now Customer wants a financial capability on our company to sustain a $2 million contract...can you help?
Customer wants a balance sheet and I have a CPA doing that part. But I have to get a lending firm to cover my cash flow. I have just started this company 2 years in July. Customer wants to see if I can handle the 2 million dollar task. I know I can, but I have to prove it.
RESPONSE: Your concern is one of the areas the SBA exist to help or guide you! Have you talked to a Business Development/Loan Specialist in your local office? Here are several options:
Option 1 - I would be right up in the SBA office, showing them the “almost certain” contract, and ask what the SBA can do to help. Be prepared with the right supporting information and plans you have. Be straightforward in all you share. They are tasked with many things and many of them are short staffed. So be kind!
Have your CPA prepare a Cash Flow forecast that shows an estimate of cash flow requirements over the Period of Performance. There are many types of templates for cash flow and even an SBA one you can download for free off our site. But your CPA should know this. This Cash Flow forecast will show you, and anyone you are presenting your case to, that you are aware of when and how much Cash you need for sustainability. It will also show how much operating capital you will need and when to meet your Cash Flow requirements.
Option 2 - Ask the SBA what banks they have been successful in getting SBA backed loans with for Operating/Working Capital.
It is good if you can get a "Letter of Credit" from a bank indicating they will provide operating capital "IF' or "Upon" win of the contract. This does not tie the bank to anything unless you win the contract. Try to see if you can work that out with a bank.
Option 3 – In my class, I discussed the COC (Certificate of Competency) that the SBA can provide to the contracting officer (CO) if this is an area of concern with those at the customer. Ask the SBA about this also. But you still have to prove to them you can get financing, either with their backing or from another source. Don’t go into the SBA or anywhere else with just words. Have supporting documents indicating where and from who you are “Anticipating” obtaining funding from.
Option 4 - And the final/last resort option is to find a firm that provides "Factoring" financing, also known as Receivables Financing. This is an expensive option, but it can be beneficial in the short term. Make sure you have a lawyer review the terms of any contract. What this does is a factoring firm guarantees that they will pay you a percentage (up to 100%) of each invoice you submit to the government, upon your completing the invoice. This provides ready cash for operations without having to wait for sometimes months for payment from the customer.
You can use any combination or all of these in showing DCMA that these are some of your options and how you will implement them. Make sure you get names of companies and/or banks and/or SBA contacts that you submit to DCMA so they know you are not just blowing smoke!
Let me know how this turns out, and we look forward to seeing you in our community!
Paul Sr