What NYC-Based Small Business Owners Need to Know about Contract Financing

What You Need to Know About Small Business Contract Financing

There are tremendous opportunities for small business owners who are interested in obtaining contract work with New York City-based agencies. In order to take advantage of these opportunities, it’s important that the business has adequate capital to fund it. How can you get financing that can help your business bid more competitively and enable contract fulfillment? That’s where the New York City Contract Financing programs come in.

This article by Excelsior Growth Fund’s Business Advisory Services team provides an overview of everything you need to know about the contract financing process as well as resources that can help you submit a successful application.

What is contract financing?

Contracts with New York City-based agencies can provide lucrative business opportunities for small businesses in a huge range of industries, from commercial cleaning services to child care, and from building construction to furnishings, landscaping and maintenance.

Many small business owners are reluctant to bid if they don’t have enough cash on-hand to competitively bid or to cover the costs needed to fulfill the contracts (such as hiring more staff and purchasing more equipment).

Contract financing is the answer that small business owners need. It’s specifically developed to meet these needs with advantageous interest rates and terms.

What is the New York City Contract Financing Program?

Specifically for small businesses operating in the New York-metro area, the New York City Contract Financing Program is available through the New York City Small Business Services department.

As a loan program, it has several significant advantages:

  • With loans up to $500,000 available, business owners can cover major equipment, staffing and other contract-fulfillment expenses.
  • The loans come with an annual interest rate of 3%, which is far lower than many other loan programs (closing fees of 1-2% also apply, so the actual annual percentage rate, or APR, will be slightly higher).

Who is eligible for this program?

The contract financing program is available to all small businesses that have a contract with or are bidding on a contract with a New York City agency. To be eligible, you must:

  • Have an operating business
  • Apply as a primary contractor or subcontractor for a contract with a New York City-based agency or the New York City Economic Development Corporation. Ask the Agency’s Chief Contracting Officer if their contracts are eligible as some city agencies do not participate in this program.

What’s the loan process like?

The loan application is comprehensive, which means that it can seem overwhelming for many small business owners, especially if you’re new to the process. Keep in mind, though, that there are a lot of great resources available to you for free, including the team at EGF.

Between organizing information needed for the application, applying and the approval process, it can take about four to six weeks, on average, for you to receive a decision. As with other small business loan programs, you’ll want to ensure that you start the process as early as possible to give yourself the best advantages.

How do you get the process underway?

EGF has a lot of great online resources that can help you. Get started by learning more about the bidding process—including how to find contract opportunities—and the steps you’ll need to take throughout the process.

When you review requests for proposals, you’ll see that one of the first steps in the bidding process is simply to submit a letter of intent to bid, which gives you access to key workshops and meetings. It also enables you to apply for contract financing.

What do lenders want to see?

While a lot of the information that you’ll need to provide is standard for small business loans, there are some additional considerations for contract financing in general, including loans through the NYC Contract Financing Fund. Lenders will want to know:

  1. The size, scope and cash requirements of the project to ensure that you are applying for the appropriate amount of financing. A simple way to do this is to provide a copy of your proposal for the project to the lender so that they can better understand the project and accurately assess your estimated financing need.
  1. The agency providing the contract, the contract category and contract type. The contract type is based on the dollar amount: up to $20,000 is a discretionary contract, $21,000 to $100,000 is a request for proposals, and more than $100,000 is a formal bid.

The agency, contract category and contract type will impact the timeline in which your business will be paid for your products or services, and this information will help the lender understand your anticipated timing for payments.

  1. Your business’s past, current and projected cash flow.
  1. Your professional experience and personal financial history. If you have previously completed municipal work, include information on the agencies, services, and contract sizes as well as details on your role as a primary contractor and/or subcontractor.
  1. The collateral and legal requirements needed to assure payments.
  1. Your business’s capacity to pay back the loan.

You may also want to provide a capabilities statement to highlight your business’s previous experience in contracting with government agencies. Include information on your specific experience such as the agencies you’ve worked with, the number of contracts you’ve previously completed, and the dollar amounts of the projects. If you’re currently working on other government agency contracts, provide information on:

  • The start and end dates of the contract
  • The dollar values of the projects
  • The percentage of the project that’s been completed and the percentage remaining
  • The estimated gross profit from the project
  • Remaining billings from the contract

If you are planning on bidding on additional contracts, you can include this same information to round out your financial projections. Be sure to include your specific commodity codes for each tier of government you contract with. All levels of government utilize various “commodity codes” which directly correlate to the product or service you can provide. Be specific in the items you supply or sell.

How can you prepare?

Preparation is essential for a better chance of approval, so if you’re new to the process, we encourage you to talk to EGF as soon as possible.

If you’ve previously contracted with government agencies, show your lender that you’re familiar with the agencies’ work, spending, processes and their upcoming projects. Be sure to demonstrate that you know your competition for the contract and that you understand the contracting process.

Excelsior Growth Fund can help you get started if you need additional assistance. We provide small business owners with a wide range of business services that include, but aren’t limited to:

  • Assistance with the development of executive summaries of the business and financial projections
  • Work-in-progress (WIP) reports
  • Contract cash-flow reports and financial forecasting projections

In addition, there are terrific community resources that are also free or low-cost. These include:

Contract financing can be complicated, but you don’t have to go it alone

Now that you know that there are financial resources available to help your small business be more successful in the contract-bidding process, don’t let the complexities of the application make you hesitate. Excelsior Growth Fund has the knowledge and experience, as well as community resources, to help your business achieve its best bidding position. Call us today.