How to Finance Your First Government Contract

Government contract financing is how you pay for payroll, materials and startup costs between the day work begins and the day your first federal payment arrives. On most contracts you perform first and invoice afterward, and payment is generally due 30 days after the agency gets a proper invoice or accepts the work, whichever is later. Small businesses usually bridge that gap with their own cash, a bank line of credit, a loan backed by the Small Business Administration (SBA) or invoice financing, because financing from the government itself, such as progress payments, appears only in some larger contracts.

What follows is general information as of October 2026, not financial, tax or legal advice.

Why government contract financing matters: the cash gap

On most contracts, you invoice after you deliver or perform, not before. So you cover payroll, materials and startup costs out of pocket first.

Here's a hypothetical service contract that starts October 1 and bills monthly:

• October: you do the work and pay your staff, suppliers and insurance for the month.
• Early November: you submit a proper invoice for October.
• Early December: payment is due, 30 days after the invoice (sooner if the agency meets its 15-day goal for small businesses).

By the time October's payment lands, November's costs have gone out too. That's roughly two months of expenses on your own, and more if your first invoice has a problem.

To size the gap, look up past awards like the one you're chasing with our USAspending research guide. FedReady's free agency pages also show what each agency spends and who wins its work.

How long does the government take to pay?

Where you send invoices

Your contract tells you how to invoice. Many civilian agencies use Treasury's free Invoice Processing Platform (IPP), where you can also check payment status. The Department of Defense (DoD) uses Wide Area WorkFlow (WAWF), part of its Procurement Integrated Enterprise Environment (PIEE). WAWF requires an Electronic Business point of contact in your SAM.gov registration.

The 30-day Prompt Payment rule

Under FAR 32.904, payment is generally due on the later of two dates:

• The 30th day after the billing office receives a proper invoice.
• The 30th day after the government accepts the supplies or services.

For interest purposes, acceptance is treated as happening on the 7th day after you deliver, unless there's a dispute. An invoice missing required information must be returned within 7 days with the reasons, and the 30 days count from when a proper one arrives.

If an agency pays late, Treasury says that "in most cases" it must pay interest. The Prompt Payment interest rate for July 1 to December 31, 2026 is 4.75%.

The 15-day goal for small businesses

FAR 32.009-1 tells agencies to pay small business contractors "with a goal of 15 days after receipt of a proper invoice." The same rule appears in the FAR overhaul text agencies have adopted. It's a goal, and it creates no new Prompt Payment rights, so don't build your budget around it.

Small subcontractors benefit too. Under FAR 52.232-40, a prime contractor that gets accelerated payments must pass them on to its small business subcontractors within 15 days, to the maximum extent practicable.

What slows payment down

• An improper invoice. Missing or wrong details, such as the contract number, can get it sent back.
• An inactive SAM.gov registration. No payments can be processed while your registration is inactive, and you must stay registered through final payment.
• Disputes over acceptance. The government may not accept work it thinks falls short.
• A lapse in appropriations. In a shutdown, payments can be delayed until funding returns. See our government shutdown guide.

What contract financing does the government offer?

In the FAR, "contract financing" means payments before the government accepts your work. FAR Part 32 covers it. For most small first contracts, there isn't any.

• Commercial buys: the FAR says financing of the contract "is normally the contractor's responsibility" for commercial products and services.
• Small purchases: under FAR 32.003, contract financing isn't provided for simplified acquisitions under Part 13 unless agency regulations allow it.
• When small businesses can qualify: under codified FAR 32.104, the contract price generally has to exceed the simplified acquisition threshold ($350,000). You also have to show that you can't bill for a long time (normally 4 months or more) while spending heavily, or that you have an actual financial need or can't get private financing.

Contracting officers must give "special attention" to a small business's financing needs, but financing only exists if the contract includes it.

The three types

• Progress payments based on costs: the government reimburses part of your costs as you incur them, then deducts that amount from later delivery payments. Under codified FAR 32.501-1, the customary rate is 85% of total costs for small businesses and 80% for others.
• Performance-based payments: you're paid when you hit measurable events or milestones set in the contract. The FAR calls them the preferred method when practical and the contractor agrees. They aren't used for sealed bid contracts or for construction contracts paid by percentage of completion.
• Advance payments: money paid before you perform. The FAR calls them "the least preferred method of contract financing." They require written findings by the agency and generally aren't allowed if other financing is reasonably available, so they're rare.

SBA contract loans and bond guarantees

The SBA doesn't lend to you directly. It guarantees loans made by banks and other lenders (and funds nonprofit microloan lenders), and you apply through the lender. These programs fit contract work:

• 7(a) loans: the SBA's main loan program, with a maximum of $5 million.
• SBA Express: a 7(a) loan of up to $500,000 with a maximum SBA guarantee of 50%. It can be a revolving line of credit.
• CAPLines: an umbrella program for short-term and cyclical working capital needs. The Contract CAPLine "finances the costs of one or more specific contracts, including overhead or general and administrative expenses, allocable to the specific contract(s)."
• Microloans: up to $50,000 (the average is about $13,000) through nonprofit community lenders. Terms run up to 7 years. See SBA's microloan page.

For contracts that need bonds, mostly construction, the SBA Surety Bond Guarantee program backs bid, performance, payment and ancillary bonds from participating surety companies. It covers contracts up to $14 million for federal work and $9 million for non-federal work. SBA charges 0.6% of the contract price for performance and payment bond guarantees and nothing for bid bond guarantees.

Loans take time, so talk to a lender well before your bid is due.

Private financing: lines of credit, factoring and purchase order financing

Private options can move faster than government ones, but the easier they are to qualify for, the more they tend to cost.

• Business line of credit: your bank sets a limit, you draw what you need and repay when the government pays. It's often the cheapest option, but banks usually want a track record and sometimes collateral.
• Invoice factoring: a factoring company buys or lends against your approved invoices. It advances part of the invoice now and sends the rest, minus its fee, after the government pays. It's easier to get than a bank line, but fees add up when payments are slow.
• Purchase order financing: a finance company pays your supplier for goods you'll resell under a contract, then gets repaid from the government's payment. It fits supply contracts with big material costs, not labor-heavy services.

The Assignment of Claims rule

The government pays the bank account in your SAM.gov registration. To have it pay a lender or factor instead, you need an assignment of claims under FAR 32.802. The main conditions:

• The contract calls for payments of $1,000 or more and doesn't prohibit assignment.
• The assignee is a bank, trust company or other financing institution, including a federal lending agency.
• You generally make only one assignment per contract, covering all unpaid amounts. One lender can act as agent for several.
• The assignee sends written notice and a true copy of the assignment to the contracting officer, the surety on any bond and the disbursing officer.

The assignee must also register separately in SAM.gov. Without a proper assignment, FAR 52.232-33 treats SAM.gov bank details that route your payment to someone else as incorrect, so don't swap in a lender's account.

Construction contracts: retainage, weekly payroll and bonds

Progress payments and retainage. Under the payments clause at FAR 52.232-5, the government makes progress payments monthly as the work proceeds. Codified FAR 32.904 makes them due 14 days after a proper payment request. If you aren't making satisfactory progress, the contracting officer may hold back up to 10% of a payment until you are. Once the work is substantially complete, the government can keep enough to protect itself and must release the rest. Unless the contract sets another date, retained amounts are due 30 days after the contracting officer approves their release.

Davis-Bacon payroll. On federal construction contracts over $2,000, Davis-Bacon prevailing wages apply. The Department of Labor says contractors must pay covered workers weekly and submit weekly certified payrolls. Form WH-347 is optional, but the weekly reporting isn't. Since you pay weekly and bill monthly, you carry several weeks of payroll before each progress payment arrives.

Bonds. The Miller Act requires performance and payment bonds on construction contracts over $150,000. For contracts over $35,000 up to $150,000, the contracting officer picks two or more payment protections, such as a payment bond or an irrevocable letter of credit, and you provide one of them. When a performance bond is required, a bid guarantee generally is too. Sureties review your finances, so line up bonding before you bid.

Before you bid: a cash plan checklist

Run through this before you set your price.

• Read the payment terms: billing frequency, invoicing system, any financing clause and any retainage.
• Build a month-by-month cash forecast through your first two payments.
• List every cost that starts before the first check: payroll, taxes, materials, insurance, bonds, subcontractors.
• Plan for the cost of financing (interest or fees) when you set your price. On cost-reimbursement work, interest isn't an allowable cost under FAR 31.205-20, so it can't be billed as a cost.
• Talk to your bank or an SBA lender now, not after award.
• Check that your SAM.gov registration is active and your banking details are correct.
• Set up your IPP or WAWF account before your first invoice is due.
• Keep a cushion for a rejected invoice, a dispute or a funding lapse.

To keep one bid's dates and to-dos together, a free FedReady account includes bid workspaces with a checklist, key dates and calendar sync.

Free help with your cash plan

You don't need to pay anyone to check your plan. Small Business Development Centers (SBDCs) offer free or low-cost counseling, and SCORE mentors work at no cost. Ask one to review your cash forecast or loan application. An APEX Accelerator can usually help with the contract side at no cost.

Next steps

Plan for financing costs when you price your bid with how to price a government contract. Then pick a first target you can carry with how to win your first federal contract, and find free local help through APEX Accelerators.

This guide is general information, not legal or financial advice. Rules and thresholds change, so confirm details on SAM.gov and the official agency sites linked above before you act. FedReady is an independent company and is not affiliated with any government agency.